Nature and biodiversity degradation poses risks to businesses, investors and society and increasingly attracts investors’ attention through the arrival of nature-related disclosure frameworks and regulations. However, gaps in data availability and quality continue to create challenges for the integration of nature-based solutions in investment strategies.
We have partnered with AXA Climate to dig deeper into nature data challenges. Our joint research demonstrates that while country-level nature-related datasets are becoming more widely available, they come with a variety of challenges, including inconsistent coverage and complexity of use.
Along with AXA climate, we provide a useful guide to the available data and show that selecting the relevant indicator for each use case is critical for accurately evaluating the risks and opportunities associated with nature in sovereign investing.
Why is this research important?
The field of sovereign nature-related risk assessment is relatively nascent, and the need to aggregate location-specific nature indicators at the country level adds a layer of complexity. To help investors start their journey towards including nature into their sovereign investment strategies, our research:
- Provides clarity on the main nature-related concepts
- Explains why nature is of major interest for sovereign investment
- Surveys datasets to highlight the need to evaluate nature-related risks and opportunities from a multi-dimensional perspective
- Outlines the challenges that investors face regarding country-level nature analysis
Why is nature of major interest for sovereign investment?
More than half of the global economy (around US$44 trillion) is estimated to be linked directly to nature. The three largest nature-dependent sectors produce close to $8 trillion of gross value added: construction (US$4 trillion of gross value added), agriculture (US$2.5 trillion), and food and beverages (US$1.4 trillion).[1] Together, these sectors are more than two times larger than the UK’s economy in 2024.[2] Other industries, such as mining and metals, aviation, travel and tourism and real estate are also highly dependent on nature and even more so through their supply chains.
Consequently, nature degradation and biodiversity loss could impact countries’ creditworthiness and the valuations of sovereign bonds. Decreases in production capacity and increased vulnerability to natural disasters will negatively impact economic activity, resulting in changes in current account balances, exchange rates, debt profiles and tax revenues. In contrast, countries that actively work to halt or reverse the loss of nature could see their creditworthiness improved as natural assets become scarcer and more valuable.[3] Yet in many cases, these risks and opportunities are still ignored or mispriced in bond markets.[4]
[1] World Economic Forum (2020). Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy.
[2]In 2024, the United Kingdom’s GDP is estimated at US$3.5 trillion. International Monetary Fund (2024). World Economic Outlook Database: April 2024 Edition.
[3] Finance for Biodiversity Initiative. (2022). Nature Loss and Sovereign Credit Rating.
[4] Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science, and Planet Tracker (2020). The sovereign transition to sustainability: Understanding the dependence of sovereign debt on nature – Summary.
Legal Disclaimer
Republication or redistribution of LSE Group content is prohibited without our prior written consent.
The content of this publication is for informational purposes only and has no legal effect, does not form part of any contract, does not, and does not seek to constitute advice of any nature and no reliance should be placed upon statements contained herein. Whilst reasonable efforts have been taken to ensure that the contents of this publication are accurate and reliable, LSE Group does not guarantee that this document is free from errors or omissions; therefore, you may not rely upon the content of this document under any circumstances and you should seek your own independent legal, investment, tax and other advice. Neither We nor our affiliates shall be liable for any errors, inaccuracies or delays in the publication or any other content, or for any actions taken by you in reliance thereon.
Copyright © 2024 London Stock Exchange Group. All rights reserved.
The content of this publication is provided by London Stock Exchange Group plc, its applicable group undertakings and/or its affiliates or licensors (the “LSE Group” or “We”) exclusively.
Neither We nor our affiliates guarantee the accuracy of or endorse the views or opinions given by any third party content provider, advertiser, sponsor or other user. We may link to, reference, or promote websites, applications and/or services from third parties. You agree that We are not responsible for, and do not control such non-LSE Group websites, applications or services.
The content of this publication is for informational purposes only. All information and data contained in this publication is obtained by LSE Group from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical error as well as other factors, however, such information and data are provided "as is" without warranty of any kind. You understand and agree that this publication does not, and does not seek to, constitute advice of any nature. You may not rely upon the content of this document under any circumstances and should seek your own independent legal, tax or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Neither We nor our affiliates shall be liable for any errors, inaccuracies or delays in the publication or any other content, or for any actions taken by you in reliance thereon. You expressly agree that your use of the publication and its content is at your sole risk.
To the fullest extent permitted by applicable law, LSE Group, expressly disclaims any representation or warranties, express or implied, including, without limitation, any representations or warranties of performance, merchantability, fitness for a particular purpose, accuracy, completeness, reliability and non-infringement. LSE Group, its subsidiaries, its affiliates and their respective shareholders, directors, officers employees, agents, advertisers, content providers and licensors (collectively referred to as the “LSE Group Parties”) disclaim all responsibility for any loss, liability or damage of any kind resulting from or related to access, use or the unavailability of the publication (or any part of it); and none of the LSE Group Parties will be liable (jointly or severally) to you for any direct, indirect, consequential, special, incidental, punitive or exemplary damages, howsoever arising, even if any member of the LSE Group Parties are advised in advance of the possibility of such damages or could have foreseen any such damages arising or resulting from the use of, or inability to use, the information contained in the publication. For the avoidance of doubt, the LSE Group Parties shall have no liability for any losses, claims, demands, actions, proceedings, damages, costs or expenses arising out of, or in any way connected with, the information contained in this document.
LSE Group is the owner of various intellectual property rights ("IPR”), including but not limited to, numerous trademarks that are used to identify, advertise, and promote LSE Group products, services and activities. Nothing contained herein should be construed as granting any licence or right to use any of the trademarks or any other LSE Group IPR for any purpose whatsoever without the written permission or applicable licence terms.
