Key Takeaways:
- Unprecedented biodiversity loss is creating LP pressure for private market investors.
- Investors should be aware that biodiversity loss poses material risks for portfolio assets, as resulting operational and supply chain disruptions may diminish returns.
- Asset classes with strong dependencies on natural resources and ecosystem services, encompassing infrastructure, agriculture, and real assets, generally face the highest vulnerability to operational disruptions.
- Natural capital is emerging as a competitive asset class, offering stable cash flows aligned with rising customer and regulatory demand for enhanced ecosystem services.
- Investors in physical asset classes should assess highly variable biodiversity risks and opportunities with emerging technologies and framework-aligned reporting.
Trend 1: Nature is Now a Financial Issue
Private market assets inextricably depend on biodiversity given that approximately half of global GDP derives from ecosystem services. The extraction and initial processing of natural materials, creating private benefits, are responsible for 90% of land-based biodiversity loss and water stress. With global wildlife populations expected to decline more than 73% over the next 50 years, the private market can anticipate mounting pressure to incorporate biodiversity risks and impacts into investment underwriting and asset management.
Like climate change, biodiversity loss presents a catastrophic risk to investors that science can help predict but not fully measure. Similar to greenhouse gas (GHG) emissions, localized ecosystem disruptions may seem harmless in isolation but degrade land and reduce biomass when aggregated across continents, hindering business operations. Substantial variation in environmental harms (i.e., deforestation, dredging) and scope (e.g., species extinction, soil degradation) renders corporate ecosystem damages highly difficult to measure. Consequently, analyzing asset exposure to biodiversity-driven risks or value requires evaluating more nuanced metrics than climate change, for which GHG emissions provide a relatively uniform measure.
Emerging regulations like the UK Net Gain Legislation, EU Nature Restoration Regulation, and EU Deforestation Regulation now require corporations to understand and minimize their adverse biodiversity impacts. Frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD) have set forth disclosure standards that enable businesses to understand their nature-related risks and fulfill such requests. Per Malk’s Annual DDQ Analysis, 53% of Pro-ESG Limited Partners (LPs) requested biodiversity or TNFD information in 2025, a sharp increase from 29% in 2024. Providing TNFD or equivalent disclosures to LPs can accordingly help investors access larger pools of capital during fundraising. Mounting regulatory and LP pressure warrant investors to gauge their exposure to nature-related risks and opportunities.
Trend 2: Biodiversity Loss is a Nonlinear Financial Risk
Nature-related disturbances can negatively affect financial performance; firms with higher biodiversity risk exposure face greater performance aspiration deficits and elevated insurance costs. Accordingly, investors expect commodities associated with inducing biodiversity loss to earn a significant risk premium. To understand how declines in ecosystem services alter business valuation, investors must first consider the extent of dependence on natural resources. Then, investors and corporations must apply actionable strategies to maintain and even boost financial performance amid the accelerating global biodiversity crisis.
Unsustainable natural resource use is not new, but dwindling supply increases investor uncertainty; species loss is predicted to drive $10 trillion in economic damages by 2050. Businesses that source natural materials or depend on local, healthy ecosystems face the greatest financial exposure, as shortages can hike supply prices and impede production. For instance, bee shortages have increased pollination costs 38% from 2017 to 2022, decreasing farmers’ financial margins.
Even companies indirectly reliant on natural resources or services (e.g., tourism, data centers, drug manufacturers) may experience reduced asset value and customer loss when ecosystems degrade. For example, at France’s Toulourenc Gorges, an influx of visitors altered the environment so drastically that local authorities restricted access, reducing tourism and associated revenues. Biodiversity loss farther upstream may also decrease revenue; companies and hospitals failed to meet customer demand for the anticoagulant Heparin after a 2021 outbreak of African swine fever decreased their suppliers’ pig populations.
Varied nature dependencies present challenges for investors in forecasting associated financial risks. Once nature-related impacts materialize, the financial consequences are unmistakable, but anticipating them is far more challenging. Ecosystem damage can be subtle, evolve over extended periods, and stem from interacting factors such as species decline, land degradation, or emerging natural hazards. Detecting these issues often requires specialized ecological expertise, making it difficult for investors to accurately gauge materiality or set appropriate threat levels.
Given this complexity, investors may benefit from categorizing and analyzing a company’s nature dependencies and impacts using frameworks like the Taskforce on Nature-Related Disclosures (TNFD). These tools help investors build a baseline understanding of sector- and company-specific exposure, identify where a business is most vulnerable to ecosystem disruption, and evaluate how those risks could influence long-term performance. TNFD alignment thus enables investors to detect otherwise unseen financial vulnerabilities (e.g., stranded assets due to EUDR, raw material price increases) before actualization. Turning risk insights into financial outcomes requires linking assessments to concrete operational strategies, ranging from reducing land use to enhancing water efficiency.
Trend 3: Infrastructure, Agriculture & Real Assets Face Heightened Exposure
The agriculture, extractive, and infrastructure sectors depend most on natural resources and ecosystem services and thus face the greatest financial exposure to biodiversity loss. In particular, 75% of land-related biodiversity impacts derive from agriculture and 23% from forestry. High resource use in these sectors may result in operational delays and cancellations, public scrutiny, and exposure to biodiversity regulations such as the UK Net Gain Legislation and EU Nature Restoration Regulation.
Biodiversity loss renders ecosystems more susceptible to disease, and increasingly severe and frequent infectious disease outbreaks may reduce returns for agriculture investments. Disease outbreaks reduce crop yields, limiting earnings potential, and necessitate costly remediations like pesticides. For example, the $9B Florida citrus industry has seen a revenue decline of ~80% over the past 14 years due to a widespread citrus greening disease that kills citrus trees.
Extractive operations in energy and forestry can lead to ecosystem damage and related public and regulatory scrutiny. Notably, the energy and extractives industries threaten ~18% of the IUCN Red List of Threatened Species, highly valued by scientists and the public. Not only may ecosystem harms (e.g., deforestation, water scarcity) result in outcry from local communities, downstream product demand may falter. For instance, U.S. RV companies have received negative media attention for sourcing deforested lauan plywood from Indonesia. Given studies show customers are willing to pay premiums for RVs made with sustainable alternatives, U.S. RV companies sourcing deforested lauan risk losing future market share.
Infrastructure entities may face costly physical damages if proximate to deteriorating ecosystems, with risk generally proportionate to asset scale. For example, highways intersecting deforested land may face increased landslide susceptibility, incurring higher repaving costs than if surrounded by vegetation. The real asset sector in particular needs healthy ecosystems to sell properties and development projects. Infrastructure assets are also susceptible to regulatory obstacles should they threaten local ecosystems (e.g., dam rerouting fish migration, bridge causing erosion). Exemplifying this risk, a coal plant planned in South Africa was cancelled because it would increase water scarcity in the surrounding area. Given the climate transition positions climate adaptation and energy infrastructure as attractive investments, investors need not avoid the asset class but instead approach investments with local biodiversity in mind.
Investors within nature-dependent asset classes can manage and even mitigate exposure to biodiversity risks by considering asset environmental footprints and related ecosystem resiliency. Broadly, investors in higher-risk asset classes should consider how nature loss uniquely impacts each business model using the best available data. Exclusions lists should then be expanded to cover harmful processes like bottom trawling fishing or toxic pesticide use. International conventions like CITES, UNESCO World Heritage Convention, and the Nagoya Protocol offer helpful guidance related to biodiversity exclusion items.
Trend 4: Natural Capital is Emerging as a Strategic Asset Class
As biodiversity loss increases investment risk in traditionally nature-dependent industries, investors are increasingly allocating funds to natural capital as an asset class. Natural capital investments enhance the monetary value of ecosystem services currently under threat. Natural capital encompasses sustainable forestry, regenerative farming, nature-based solutions, and other eco-friendly services. In particular, nature-based solutions (e.g., wetland restoration, ecological assessments) pose an increasingly attractive investment alongside worsening biodiversity loss. Investors in the natural capital asset class may be positioned to earn competitive returns while preventing further costly ecosystem damage. Allocations to natural capital funds enable sustainability-oriented LPs to fulfill commitments to reduce adverse portfolio impacts.
The market for sustainably-managed land and regenerative agriculture is growing, with nature commonly cited as the next big sustainable investment trend. In 2024, the UN Environmental Programme Finance Initiative reported that finance for nature has increased to over $102 billion from $9.4 billion in 2020. Leading firms like Bank of America, AXA IM, Schroders, and Aviva have collectively deployed over $3 billion into natural capital. The question for prospective natural capital investors thus becomes: how to align investment selections with motivations for entering the space.
Diversification benefits, stable cash flows, and nature-positive outcomes motivate natural capital investors. Natural capital assets are pivotal to societal function, driving steadier earnings than industries subject to discretionary demand fluctuations (e.g., luxury goods, entertainment). For example, farmland and timberland exhibit low-to-negative correlations with returns of publicly traded assets such as stocks. Demand for essential resources like trees, water, and soil will grow along with the global population, and sustainable solutions are needed to fill the gap with current production levels.
Investors entering the natural capital asset class may consider framework alignment to establish credibility with external stakeholders. Well-known frameworks for natural capital investments include the EU Green Taxonomy’s investment objectives (e.g., Protection and restoration of biodiversity and ecosystems, Pollution prevention and control) and the UN Sustainable Development Goals (e.g., 14: Life below water, 15: Life on land).
Like frameworks, joint funds can amplify positive environmental impacts and financial returns – as highlighted during the recent COP30 climate talks in Belém, Brazil. The new Tropical Forest Forever Facility (TFFF) is targeting a fund size of $125 billion of sovereign and private capital, distributing returns to reward countries for tropical forest conservation. Additionally, COP30 participants created the Earth Investment Engine to enable a pipeline of investible bioeconomy opportunities. These two initiatives supplement ongoing joint private investments; for example, HSBC and Gothaer Asset Management support two funds deploying over $1 billion into conservation, restoration, and sustainable land use globally – more than either could alone. The increasing allocation of government and private funds towards natural capital underscores its profitability.
Trend 5: Technology & Innovation Transforming Measurement
Technology and scientific innovation are rapidly transforming how investors and companies measure nature-related impacts and dependencies. New technological advancements reduce the costs of calculating environmental factors that are complicated to measure, like soil carbon fluxes, species richness, and watershed stress. Investors with mature, portfolio-level nature insights can capitalize on biodiversity risks and opportunities ahead of peers, informing alpha opportunities. The challenge remains how investors can leverage provided data to inform lower-risk investments in nature-dependent industries and achieve higher returns for natural capital assets.
Several technological advancements have gained prominence for nature-related risk assessments. AI tools can perform complex modeling including forecasting crop yields, setting fishing quotas, and wetland mapping with greater efficiency than humans alone. New geospatial analytics, satellite-based land and water monitoring, and hyperspectral imaging facilitate assessments of ecosystem conditions at unprecedented resolution and scale. Advances in eDNA sampling, involving extracting species’ DNA from environmental samples like water and soil, facilitates biodiversity research more quickly and inexpensively, as well as with fewer environmental impacts, than traditional DNA extraction methods.
Final Thoughts
Nature is no longer a peripheral concern for investors. Ecosystem loss drives material losses for business, particularly those with nature dependencies; supply chain shortages, operational disruptions, and regulatory or public scrutiny can turn an otherwise profitable investment into a money sink. As operational threats and regulatory pressure accelerate alongside increasing biodiversity loss, private-market investors must evaluate threats to their portfolios. Concurrently, investors may consider how to supplement core alternative strategies with natural capital investments that simultaneously diversify portfolios and support ecosystem services. To create value in increasingly unstable environmental conditions, investors must understand the interdepence between nature and financial performance, then act accordingly.
External advisors like Malk + SLR can help investors meet these standards while transforming environmental data into actionable strategies enhancing financial performance.
Malk Partners and SLR Consulting help businesses navigate biodiversity risks and opportunities through complementary approaches. Malk integrates biodiversity considerations into due diligence and value creation strategies, enabling investors and companies to identify nature-related risks and translate them into financially material insights. SLR supports organizations in understanding nature impacts through science-based strategies aligning with evolving disclosure requirements (e.g.,TNFD, CDP, CSRD). A sampling of SLR’s services includes natural capital valuation, training programs for biodiversity and ecosystem management, and nature-based solutions design. Malk and SLR can assist investors with capitalizing on biodiversity-related risks to concurrently enhance ecological and financial outcomes.
Authors & Contributors
Tana Delalio
Tana Delalio is a Senior Associate on Malk Partners’ Private Equity team. She supports investors with ESG due diligence and strategic advisory including fulfillment of LP requests, framework alignment, and annual KPI collection and reporting. She graduated magna cum laude from Amherst College, where she earned a bachelor’s degree as a double major in Environmental Studies and Law, Jurisprudence, and Social Thought.
Storm McLaughlin
Storm is an Engagement Manager at Malk Partners. Storm has assisted clients in the full gamut of ESG work, including due diligence, ongoing program implementation, and internal strategy. Managing various middle market clients and assisting with diligence and advisory on hundreds of transactions, Storm has overseen the creation and execution of ESG strategies for middle market GPs with investments spanning a wide variety of industries. Storm holds a B.S. in Industrial Engineering and Management Sciences with a second major in Economics from Northwestern University.
Chase Wisnowski
Chase began his ESG career in private equity due diligence, before transitioning to build Malk’s Venture and Growth Equity practice, leading hundreds of diligence reviews in the growth and venture space and supporting these firms in building industry-leading ESG programs. Chase then built Malk’s Multi-Strategy practice, helping high-AUM investors remain on the cutting edge of ESG, and pioneering Malk’s approach to ESG integration in asset classes such as Infrastructure and Secondaries. Now serving as Malk’s Senior Vice President – Head of Europe, Chase is leading the firm’s expansion into the European market. Based in London, he is focused on deepening relationships with European private equity firms and helping them implement best-in-class ESG strategies tailored to regional regulations and investor expectations. Chase holds a B.S. in Finance and International Business Regional Studies (Latin America) and a Minor in Spanish from Georgetown University.
Loree M. Gourley
At SLR Loree co-leads the UK Sustainable Finance Advisory practice along side James Hilburn and Chase Wisnowski. Thematically, Loree focuses her experience and expertise on advising clients on the climate, nature, water nexus. She is passionate about increasing the resilience and the value of biodiversity & nature across the ecosystem as well as being keenly focused on the role AI can play in driving positive outcomes in the area of social and human rights – using AI for good. Loree has more than 20 years experience in working with both financial service institutions as well as corporates to champion a more equal balance between the interests of shareholders and the broader constellation of stakeholders when delivering sustainable long-term strategic and operational value. Loree has a Master Business Administration (MBA) from Macquarie Graduate School of Management (MGSM), holds an Executive Education Certificate in Sustainable Finance from INSEAD and has recently completed the Artificial Intelligence (AI) certificate at the University of Oxford – Said Business School and is widely published on the topics of effective stewardship, ethical leadership and nature & biodiversity.
Malk Partners does not make any express or implied representation or warranty on any future realization, outcome or risk associated with the content contained in this material. All recommendations contained herein are made as of the date of circulation and based on current ESG standards. Malk is an ESG advisory firm, and nothing in this material should be construed as, nor a substitute for, legal, technical, scientific, risk management, accounting, financial, or any other type of business advice, as the case may be.