A new study reveals how nature loss is increasingly becoming a financial risk.
For decades, biodiversity loss was primarily framed as an environmental problem. Forests were cleared, fisheries depleted, pollinators declined, and ecosystems degraded, with the consequences discussed largely in terms of species loss, habitat destruction and ecological integrity. Increasingly, however, the financial system is being forced to confront a more consequential reality: nature loss is also an economic and financial risk.
A new study published in Nature Ecology & Evolution, Biodiversity loss will decrease the future creditworthiness of nations, provides some of the clearest evidence yet of how environmental degradation can move through the economy and ultimately affect sovereign creditworthiness. The study examines the relationship between the loss of ecosystem services and three indicators that financial markets already understand well, sovereign credit ratings, the probability of default, and the cost of borrowing.
The researchers focus on three ecosystem services – tropical timber, wild pollination and marine fisheries – and model their potential decline across 23 countries representing approximately 5.5 billion people. By combining ecological-economic modelling with a sovereign credit assessment framework, the study attempts to answer a question that has received far less attention than the relationship between climate change and financial risk: what happens to the cost of capital when the natural systems underpinning economic activity begin to deteriorate?
The answer is significant.
The study argues that nature is not simply an externality sitting outside the economy. Ecosystems provide productive inputs and services that support agriculture, forestry, fisheries, trade, employment and human wellbeing. When those services decline, the effects can move through supply chains and national economies, affecting GDP, government revenues, fiscal balances, and debt sustainability.
The authors model two scenarios. The first is a business-as-usual scenario that incorporates continued declines in natural capital and ecosystem services. The second is a partial ecosystem collapse scenario involving a 90% reduction in wild pollination services, a 90% reduction in marine fisheries catch biomass and the conversion of 88% of tropical forest into grassland or shrubland.
The authors are clear that these scenarios are not predictions. The partial-collapse scenario is intended as a stress test rather than a forecast of the most likely future. Nor does the analysis capture the full range of biodiversity and ecosystem services that support economies. The study focuses on only three services that can currently be modelled consistently at a global scale. The results should therefore be interpreted as scenario-based estimates and lower-bound estimates of the potential economic consequences of nature loss.
Under the business-as-usual ecosystem scenario, countries including Indonesia, Bangladesh, India, and China could experience sovereign credit downgrades of at least one notch. Under the partial-collapse scenario, the impacts become much more severe. Malaysia, China, India, and Bangladesh could experience downgrades of at least four notches, while the Democratic Republic of the Congo, Angola, and Madagascar could become effectively unratable under the model.
The economic consequences are even more significant when translated into the cost of debt. Across the 23 countries studied, the researchers estimate that the partial ecosystem collapse scenario could result in approximately US$162 billion in additional annual interest payments on sovereign debt. China could face an additional US$70 billion in annual debt servicing costs, while India could face US$49 billion. For the median Indian citizen, the additional cost associated with nature-driven borrowing increases would be equivalent to approximately 2.4% of annual disposable income.
These figures illustrate the potential for a reinforcing cycle between nature loss and financial vulnerability. Ecosystem degradation can reduce productive capacity and economic growth. Lower growth can weaken fiscal performance and increase debt burdens. Higher perceived risk can then increase borrowing costs, further reducing the resources available for investment in infrastructure, healthcare, education, climate adaptation, and environmental protection.
This dynamic is particularly important for biodiversity-rich developing countries. Many of these countries are already facing high borrowing costs and constrained public finances. The study suggests that continued nature loss could further increase their risk premiums, making it more expensive to finance both development and conservation. The authors estimate that the additional annual interest payments associated with nature loss across the countries in their sample could amount to 81% of the US$200 billion per year target for biodiversity finance established under the Kunming–Montreal Global Biodiversity Framework. The comparison is not intended to suggest that all of this additional debt servicing could simply be redirected toward conservation. Rather, it highlights the scale of the opportunity cost. Money spent responding to higher borrowing costs is money that cannot simultaneously be invested in ecosystem protection, climate resilience, health, education or other development priorities.
The central economic argument of the paper is that countries may ultimately face a choice between paying now to protect natural capital and paying later through higher borrowing costs, reduced fiscal space and greater economic risk. This has important implications for the carbon market.
Nature-based carbon projects already operate within many of the ecosystems highlighted by the study. Forests, wetlands, mangroves and other natural systems are valuable not only because they store or remove carbon, but because they provide a wide range of ecosystem services. They support livelihoods, regulate water, protect coastlines, sustain biodiversity and contribute to economic productivity. The study therefore strengthens the case for considering carbon finance within the broader context of nature-related financial risk. It does not suggest that every carbon project should be treated as a biodiversity project, or that carbon credits alone can close the global biodiversity financing gap. Nor should projects make unsupported claims about economic or financial outcomes. Climate claims, biodiversity outcomes and community benefits each require appropriate evidence and safeguards.
The more important point is that the ecological integrity of a carbon project may increasingly matter to a much wider group of stakeholders. Companies are beginning to assess their dependencies and impacts on nature. Financial institutions are increasingly considering nature-related risks. Governments and regulators are exploring how environmental degradation may affect economic and financial stability. In this context, a project that protects a functioning ecosystem may have significance beyond the tonnes of carbon it represents.
The study also highlights the importance of how environmental information is translated into financial decision-making. The authors argue that biodiversity finance needs stronger connections between environmental science and material financial risk. Broad sustainability metrics and generic ESG scores are not sufficient if they do not accurately reflect underlying ecological conditions. The next phase of environmental finance will require more than demonstrating that a project has generated a particular number of credits. It will require credible evidence about what is happening on the ground, how ecological conditions are changing, whether interventions are durable and how project outcomes contribute to broader resilience.
Projects that demonstrate credible climate outcomes alongside meaningful contributions to ecosystem resilience and community well-being may become increasingly relevant to companies managing a broader portfolio of environmental risks. The Nature study is a powerful reminder that nature loss does not need to be assigned a symbolic monetary value to be financially material. If the loss of ecosystem services affects productivity, growth, fiscal performance and the cost of debt, financial markets have a direct economic reason to care.
For environmental markets, the question is increasingly becoming not whether nature has financial value, but whether financial markets can recognize that value before the costs of losing it become unavoidable.
💡 The study’s most important message is that ecosystem degradation can ultimately affect the cost of capital. For carbon credit purchasers and project developers, this reinforces the importance of looking beyond tonnes of CO₂e to understand the ecological systems that support project outcomes. Landscape resilience, ecosystem integrity, and the pressures driving degradation are increasingly relevant not only to environmental performance, but also to long-term financial risk.
💡 The study presents nature conservation as a form of economic risk management. Failure to protect natural capital can create higher costs later through lower economic output, increased borrowing costs, and reduced public resources for development and adaptation. High-integrity carbon finance cannot replace public biodiversity finance, but it can help direct private capital toward projects that protect ecosystems and strengthen the natural systems on which communities and economies depend.
💡 The future value of environmental projects will increasingly depend on the quality of the evidence behind their claims. Carbon accounting remains fundamental, but buyers, investors and regulators will increasingly ask how projects affect broader ecological and social systems. The opportunity for the industry is to connect rigorous environmental science, transparent monitoring and credible financial analysis, demonstrating not only how many credits a project generates, but how effectively it contributes to durable environmental resilience. The responsibility is to ensure that claims about climate, nature and community outcomes are supported by robust science, transparent monitoring and credible safeguards.
