Turning Capital Flows Nature-Positive: Biodiversity and the Financial Sector (18.5.2026)

Imagine standing in a grocery store with two euros to spend. You hesitate between a bag of candy and a bag of carrots. The candy promises immediate pleasure — a quick reward here and now. The carrots, on the other hand, offer little instant excitement but support your health in the long run.

Individually, the choice seems small. But repeated day after day, these decisions shape long-term outcomes.

Similar choices are made continuously in the financial sector. Capital can be directed toward activities that generate short-term returns but gradually undermine nature. Alternatively, it can finance action that may appear less immediately rewarding yet strengthen long-term economic resilience while simultaneously benefiting nature.

The Financial Sector’s Indirect Impact on Nature

The financial sector rarely impacts nature directly. Most often, its influence happens through financial flows. When individuals save or invest money, the money is channeled forward to companies, projects, and development initiatives. Financial sector channels this money and therefore influences which activities receive funding, at what cost and under which conditions, e.g. is the price of the funding tied to biodiversity efforts.

This makes financial sector highly relevant when addressing environmental issues, such as biodiversity loss. A key question is: does the financial sector fund activities that harm nature or does it direct funding to nature-positive actions? Pricing mechanisms, lending conditions, and investment criteria can either encourage biodiversity-friendly practices or reinforce harmful ones. In simple terms, finance can either support efforts to enhance biodiversity or enable its weakening.

Biodiversity Loss as a Financial Risk

Financial sector is not only an important actor in solving biodiversity loss, but biodiversity loss itself represents a material issue to the sector, especially from risk perspective. Biodiversity loss is seen as second most severe risk in the long term (WEF, 2026), and all business activity is dependent on and impacts nature (IPBES, 2026). As ecosystems degrade, businesses may face operational disruptions, or shortages of raw materials. These risks then materialize in the financial sector through credit risks, market risks and systemic instability. That’s why biodiversity risks should be understood and managed as financial risks.

A characteristic feature of the financial sector is that it is interested in risks and is skilled at managing them. From this perspective, efforts to enhance biodiversity can be seen as a form of risk management. When the sector reduces its negative impacts and strengthens positive effects on biodiversity, it simultaneously reduces the risks facing its portfolios and the broader financial system. From this perspective, biodiversity work is not separate from core financial business, it is an integral part of risk management.

From Capital Allocation to Systemic Change: Financial Sector as a Transformation Lever

The current biodiversity actions in the financial sector remain insufficient relative to the scale and urgency of the problem. Majority of private financial flows are still directed to nature-negative actions (UNEP, 2023). Rapid action, also in the financial sector, is necessary to address biodiversity loss and prevent further environmental damage. Solving biodiversity loss demands comprehensive societal transformation, including fundamental changes in how financial resources are allocated (Dasgupta, 2021).

Strengthening nature capital improves long-term foundations of economic performance.  It is essential to shift production and consumption toward more sustainable practices while also enhancing nature through restoration and conservation efforts. The financial sector can support, and even drive, this transition through the pricing of finance, engagement with clients and portfolio companies and investments in nature-positive initiatives. The sector can also support the development of biodiversity regulation and facilitate the emergence of market-based limits.

Ultimately, finance sector does more than allocate capital – it shapes the future direction of the economy. By integrating biodiversity considerations into financial practices, the sector has the potential not only to reduce risks but also to act as a catalyst for broader societal transformation toward a nature-positive economy.

References

Dasgupta, P. (2021). The Economics of Biodiversity: the Dasgupta Review. Cambridge University Press.

IPBES. (2026). Summary for Policymakers of the Methodological Assessment Report on the Impact and Dependence of Business on Biodiversity and Nature’s Contributions to People. Jones M., Polasky S., Rueda X., Brooks S., Carter Ingram J., Egoh B. N., von Hase A., Kohsaka R., Kulak M., Leach K., Loyola R., Mandle L., Rodriguez-Osuna V., Schaafsma M. and Sonter L. J. (eds.). IPBES secretariat, Bonn, Germany.

UNEP. (2023). State of Finance for Nature: The Big Nature Turnaround – Repurposing $7 trillion to combat nature loss. Nairobi.

WEF. (2026). Global Risks Report 2026.

Author: Elisa Mansikkamäki, M.Sc. in Economics and Business Administration, Responsible Business. This post is written based on the author’s thesis, which received the EBEN thesis award 2026.