Biodiversity risk screening tools in finance fail to meet the need for local project risk screening

Abstract

This research evaluates the current state of risk screening tools used by financial institutions to assess biodiversity risks and their alignment with regulatory disclosure requirements (CSRD ESRS E4) and voluntary guidance frameworks (TNFD and GRI). Our assessment reveals that while the reviewed biodiversity risk screening tools offer useful insights on potential or estimated biodiversity impacts and risks in financial institutions’ portfolios, their outputs need to be complemented with additional data and analysis to meet the needs of regulatory or voluntary reporting initiatives. This is because most of the reviewed biodiversity risk screening tools use sector averages, proxies, or modelled data, providing potential rather than actual impacts on biodiversity. Most tools were created for coarse screening purposes and lack location-specific data required for accurate, asset-level analysis, limiting their effectiveness in assessing biodiversity risks at sites of operation. To enhance transparency and accountability, we argue that location-specific and granular data that companies can use as inputs into their assessment must be publicly available, ensuring all stakeholders, including regulators, civil society, and investors, have access to information that is fit-for-purpose to assess actual biodiversity impacts of portfolio assets and activities and full exposure to biodiversity risk. A consequence of this is that existing tools also often fail to account for project- and company-level actual biodiversity pressures, such as land-use change, water use, and invasive species, which are essential for physical risk assessment and mitigation. The research discusses the importance of integrating spatially explicit data on land use and other biodiversity impact drivers to refine outputs from the biodiversity risk screening tools. It emphasizes the need for a standardized set of definitions bridging the financial sector and biodiversity research to ensure consistent, scientifically robust data. Ultimately, the lack of adequately local impact metrics means that most biodiversity screening tools lack the leverage to make investors a force for biodiversity stewardship on the ground.