Nature and biodiversity: investor objectives for risk and opportunity

Nature presents both investment risks and opportunities. This analysis explores two objectives investors may consider when integrating nature into their portfolios: mitigating dependency risks and investing in companies whose products and services address biodiversity loss.

Introduction

In a previous paper on nature and biodiversity, we introduced the following investment thesis: nature functions as an underlying asset for many sectors, with ecosystem services such as pollination and water purification supporting operations, supply chains, and markets. Understanding how portfolio companies depend on nature and biodiversity may be a key consideration for investors seeking to manage related risks.¹

Beyond managing nature-related risks, some investors are also seeking investment opportunities tied to nature and biodiversity. In a recent State Street Investment Management survey of 330 EMEA-based asset owners, more than half of respondents identified capturing opportunities from solutions to nature and biodiversity challenges as a top-three driver for integrating these considerations into their investment strategies.² This could suggest that many respondents view nature and biodiversity as presenting both risks and opportunities.

This article explores two objectives that investors may consider when incorporating nature and biodiversity in their portfolios:

1. Mitigating nature-related dependency risks

To address these risks, investors can evaluate how portfolio companies manage nature-related dependencies and incorporate this information into portfolio construction.

2. Investing in companies whose products and services address biodiversity loss

Beyond risk mitigation, there may be opportunities to invest in companies developing solutions that address biodiversity loss and preserve natural capital, from regenerative agriculture technologies to water recycling to resource efficiency.

Identifying and addressing risks from nature dependencies

Investors seeking to mitigate nature-dependency risks in their portfolios may choose to identify and invest in companies that demonstrate active management of their nature-related dependencies. Such companies may benefit from resource security, potential cost savings from avoiding dependency-related disruptions, and differentiated competitive positioning relative to peers with greater exposure to nature dependencies.

Considerations for portfolio construction

This objective may be implemented in various ways—for example, by tilting towards companies with resilient operating models or those that are mitigating the ecosystem service dependencies present in their direct operations and supply chains. Datasets that may assist in identifying such companies include operational metrics on water usage and pollution, as well as management-related indicators such as nature-related policies, commitments, and the adoption of sustainable practices.

Examples of highly nature-dependent sectors

In agriculture, which accounts for half of the world’s habitable land use,³ nature dependency is embedded in production systems. Soil health, water availability, and biodiversity underpin crop yields and livestock productivity. Sustainable land management practices—such as no-till farming, cover crops, and reduced chemical inputs—can improve soil health, reduce runoff, and increase resilience to climate shocks. These practices may also lower input costs, improve yields, and support food security.⁴

In the mining industry, water scarcity poses operational and reputational risks. According to the World Economic Forum, 16 per cent of critical mineral mines are located in water-stressed regions.⁵ Against that backdrop, some mining companies are setting water reduction targets and investing in infrastructure to increase water reuse. These efforts have the potential to mitigate risk and improve operational efficiency.⁶ The International Council on Mining and Metals (ICMM) has published guidance on water management and circularity, outlining the financial and operational implications of reducing waste and improving resource use. ^7,8

In both cases, investors seeking to mitigate portfolio risks related to nature dependencies may consider identifying companies with established resource management practices and incorporating these factors into portfolio construction.

Investing in companies whose products and services address biodiversity loss

Some investors may look beyond the mitigation of nature-related risks to pursue the commercial potential of products and services that address biodiversity loss, ecosystem degradation, and resource inefficiency. Such approaches span a range of sectors and technologies, addressing drivers of nature change: land and sea use change, climate change, direct exploitation of resources, pollution, and invasive alien species.

For investors seeking to capture opportunities from these solutions, identifying and investing in companies that provide them may offer sustainable outcomes alongside financial returns. Such investors may consider that businesses providing products and services addressing biodiversity loss can access new revenue streams by entering new markets or responding to shifting consumer preferences. They may also consider that firms facilitating the achievement of nature-related goals could be competitively positioned as regulatory and market conditions change.⁹

Considerations for portfolio construction

One approach involves using biodiversity and nature-related key performance indicators (KPIs) to identify companies that contribute to nature-related outcomes through their products and services, within a defined theory of change. State Street Investment Management has developed its Sustainable Outcome Investing framework,¹⁰ which provides a methodology for implementing this objective in public market portfolios.

For fixed income investors, labeled bonds may offer a mechanism for funding nature-related projects. In 2025, the International Capital Market Association (ICMA) issued guidance on sustainable bonds for nature, expanding on its Green Bond Principles.¹¹

According to our Nature in Focus survey,¹² 40% of EMEA asset owners integrating nature and biodiversity into their portfolios plan to prioritize labeled and nature-linked instruments, suggesting potential demand for these instruments. For investors whose objective is to capture opportunities from nature-related solutions, labeled bonds tied to nature restoration may offer a way to pursue sustainable outcomes.¹³

Example of a sector contributing to solutions

Water technology is one area where products and services may contribute to the preservation of natural capital. Digital tools such as smart sensors and analytics may help reduce water loss and improve system performance. Water and wastewater treatment solutions may support sustainability objectives and operational efficiency. For example, in the pulp and paper industry, such technologies may improve fiber recovery, and water and energy efficiency. For investors seeking to capture opportunities from solutions addressing biodiversity loss, companies developing such products and services may represent an avenue for pursuing sustainable outcomes alongside financial returns.

Conclusion

As this and our previous paper on nature and biodiversity have explored, nature-related investment objectives span risk mitigation and opportunity capture. Investors seeking to mitigate risks stemming from nature dependencies may identify companies that demonstrate active management of these dependencies and incorporate this analysis into portfolio construction. Investors targeting sustainable outcomes alongside financial returns may identify companies developing solutions to address biodiversity loss.

As investor interest in these objectives develops, portfolio implementation strategies, including the data required for implementation, may continue to evolve.