Nature risk is often treated as a side issue in finance but it sits at the centre of economic stability. Soil, water, and ecological systems support almost every part of the economy. When they are damaged, production slows, costs rise, and markets become less predictable. That makes nature loss a financial risk, not just an environmental concern.
This is no longer a future problem. Water shortages are forcing factories to close, soil degradation is reducing crop yields and pushing up global food prices, and coastal regions are losing their economic bases with declining fisheries. These losses move through supply chains and show up in profit, credit and long-term growth and, of course, investments held by pension schemes.
The effects are not evenly distributed. Nature loss hits lower-income communities first. They lose their livelihoods first and have to pay a higher proportion of their income for basic goods. But this isn’t just a social cost; rising inequality leads to social tension and reduced economic resilience, which is a financial risk for investors with long-term assets.
The Aviva Investing in Nature report shows how dependent global businesses are on natural systems, even those that appear unconnected to agriculture or land use. Technology companies rely on stable water supplies, pharmaceutical companies depend on biological resources, and construction depends on land quality and raw materials. In other words, most pension portfolios already carry nature risk, even if it isn’t measured yet.
The PPF Sustainability Report 2024/25 shows how climate risk is now being treated as a mainstream financial issue through data, governance and stewardship. A similar shift is needed for nature risk.
But let’s be honest, investors don’t have the power to solve nature loss on their own. Pension funds can assess exposure, adjust portfolios and engage with companies, but they still operate within economic rules set by governments across the world. Nature decline continues because policy allows it. As long as subsidies reward extraction, and environmental protections are weak, markets will continue to finance activities that damage the natural systems economies rely on. Pension funds must accept that nature decline will continue and that they cannot control it, but they can prepare for its financial impact. That means treating nature loss as a source of economic risk and embedding it in investment analysis, scenario planning, and stewardship. But for this to be effective, government must reduce policy uncertainty by setting clearer long-term rules on land use, water security, pollution and supply chain standards. Without that direction, markets will remain exposed to rising instability. The role of pension funds is not to fix nature, but to manage risk in a world where nature can no longer be taken for
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