How ESG Regulators Are Adopting Biodiversity in ESG Frameworks

As global biodiversity declines at an alarming rate, environmental, social, and governance (ESG) regulators are recognizing the critical need to integrate biodiversity considerations into reporting frameworks. Biodiversity loss, driven by climate change, deforestation, habitat destruction, pollution, and overexploitation of natural resources, poses systemic risks to economies, financial markets, and long-term sustainability goals. 

In response, regulatory bodies worldwide are developing new biodiversity disclosure requirements, establishing nature-related financial reporting standards, and incorporating biodiversity risks into ESG taxonomies. The Taskforce on Nature-related Financial Disclosures (TNFD) has emerged as a key initiative, providing a structured approach for regulators to assess, monitor, and enforce biodiversity-related reporting. 

In this blog, we’ll discuss about how ESG regulators are embedding biodiversity within regulatory frameworks, the role of TNFD, and the growing momentum for mandatory biodiversity disclosures.

ESG regulators are expanding their oversight beyond climate-related disclosures to include biodiversity as an integral component of sustainable finance frameworks. The primary drivers for regulatory intervention include: 

• Escalating Biodiversity Loss: The World Economic Forum (WEF) estimates that over half the world’s total GDP, approximately $44 trillion is moderately or highly dependent on nature and ecosystem services. The depletion of natural capital threatens financial stability, prompting regulators to address biodiversity risks. 

• Global Policy Commitments: The Kunming-Montreal Global Biodiversity Framework (GBF), adopted at COP 15, aims to halt and reverse biodiversity loss by 2030. This has increased regulatory momentum toward integrating biodiversity within ESG frameworks. 

• Systemic Financial Risks: Biodiversity degradation affects supply chains, agricultural productivity, water security, and economic resilience, necessitating financial sector alignment with biodiversity conservation goals. 

• Investor and Stakeholder Pressure: Institutional investors, central banks, and rating agencies are calling for standardized biodiversity-related disclosures to assess investment risks and corporate dependencies on nature. 

Regulators are now embedding biodiversity considerations into financial risk assessments, sustainability reporting obligations, and market-based mechanisms to ensure greater accountability in nature-related disclosures. 

The Taskforce on Nature-related Financial Disclosures (TNFD) plays a crucial role in helping regulators standardize biodiversity risk assessments and disclosures. Modeled after the Task Force on Climate-related Financial Disclosures (TCFD), TNFD provides a structured framework for integrating biodiversity into financial decision-making. 

Key regulatory implications of TNFD include: 

• Risk Identification and Assessment: TNFD enables regulators to mandate reporting on nature-related risks, ensuring financial institutions and corporations evaluate their dependencies and impacts on ecosystems. 

• Disclosure Alignment with Global Biodiversity Frameworks: The TNFD framework aligns with international agreements, such as the Kunming-Montreal GBF and the EU Corporate Sustainability Reporting Directive (CSRD), facilitating harmonized regulatory implementation. 

• Guidance for Sustainable Finance and Taxonomy Development: Regulators are leveraging TNFD’s disclosure principles to integrate biodiversity into sustainable finance frameworks, such as the EU Taxonomy for Sustainable Activities and the UK’s Green Finance Strategy. 

• Mandatory vs. Voluntary Reporting Transition: Many jurisdictions are evaluating the transition from voluntary TNFD-aligned biodiversity disclosures to mandatory reporting, ensuring robust regulatory enforcement and compliance. 

With TNFD’s final recommendations released in September 2023, regulators now have a comprehensive framework to mandate standardized biodiversity disclosures across financial markets. 

Regulators are moving toward biodiversity reporting requirements within ESG disclosure frameworks. Some key regulatory initiatives include: 

• European Union (EU): Under the CSRD and EU Taxonomy, companies must disclose their impact on biodiversity and demonstrate alignment with “Do No Significant Harm” (DNSH) principles. 

• United Kingdom (UK): The Environment Act 2021 mandates Biodiversity Net Gain (BNG) requirements for land use and development projects, setting a precedent for broader biodiversity-related financial disclosures. Under this, developments and projects will now need to ensure there is at least a 10% net gain to biodiversity. This net gain will be measured through Metric 4.0. Every developer will be required to show how this net gain will be achieved through landscape planning and planting schemes. 

• Japan: The Financial Services Agency (FSA) is incorporating TNFD-aligned nature-related risk assessments within corporate governance disclosure rules. 

• United States (US): The Securities and Exchange Commission (SEC) is exploring biodiversity-related reporting requirements as part of its broader ESG disclosure rulemaking process. 

Sustainable finance taxonomies play a crucial role in defining what constitutes environmentally sustainable economic activities. Regulators are embedding biodiversity criteria within these classifications to: 

• Ensure Investments Align with Nature-Positive Outcomes – The EU Taxonomy requires companies to prove that their economic activities do not contribute to biodiversity loss. 

• Prevent Greenwashing in Sustainable Finance Products – ESG regulators are establishing biodiversity impact thresholds for green bonds, sustainability-linked loans (SLLs), and nature-positive investment funds. 

• Support Central Bank Stress Testing – Regulators are incorporating biodiversity risks into financial sector stress testing frameworks, following the Network for Greening the Financial System (NGFS) guidance. 

Regulators are recognizing biodiversity as a material financial risk, prompting central banks to incorporate nature-related risk stress testing into financial stability assessments. Key initiatives include: 

• The Dutch Central Bank (DNB): The Dutch Central Bank (DNB) found that 36% of Dutch financial institutions’ investments are highly dependent on ecosystem services, highlighting a significant exposure to biodiversity risks. This was revealed in a landmark study titled “Indebted to Nature”.   

• The Bank of England (BoE): Examining how biodiversity loss impacts macroeconomic stability and financial institutions’ asset portfolios. 

• The European Central Bank (ECB): Exploring methodologies for assessing nature-related financial risks within monetary policy frameworks. 

These initiatives set a precedent for wider adoption of biodiversity stress testing across financial regulators and monetary authorities. 

ESG regulators are working with rating agencies and financial market watchdogs to ensure biodiversity considerations are adequately integrated into ESG rating methodologies. Key regulatory approaches include: 

• Strengthening Disclosure Requirements for ESG Rating Providers: The EU and UK are considering regulatory oversight mechanisms to prevent misleading ESG ratings that underreport biodiversity risks. 

• Aligning ESG Investment Screening with Biodiversity Standards: Regulators are enforcing stricter ESG fund classification requirements to prevent biodiversity-related greenwashing in financial products. 

• Incorporating Biodiversity Risks in Corporate Sustainability Assessments: Regulators are collaborating with global ESG standard-setters, such as ISSB (International Sustainability Standards Board), CSRD and TNFD, to ensure nature-related factors are captured in corporate ESG evaluations. 

The Future of Biodiversity Regulation in ESG 

With biodiversity emerging as a systemic financial risk, regulators must continue advancing policies that: 

• Mandate Transparent and Comparable Biodiversity Disclosures – Standardizing biodiversity reporting obligations across jurisdictions. 

• Enhance Financial Sector Resilience to Nature-Related Risks – Ensuring banks, insurers, and asset managers incorporate biodiversity considerations into risk management frameworks. 

• Strengthen ESG Taxonomies with Science-Based Biodiversity Criteria – Preventing biodiversity-washing in sustainable finance classifications. 

• Accelerate Global Coordination on Biodiversity Finance Regulations – Promoting regulatory harmonization across the EU, UK, US, Japan, and emerging markets. 

As ESG regulators take a more proactive role in biodiversity governance, collaboration with financial institutions, policymakers, and conservation organizations will be essential in ensuring a nature-positive transition within financial markets. 

Biodiversity is no longer a peripheral ESG concern—it is a critical regulatory priority shaping the future of sustainable finance, corporate disclosure requirements, and financial risk assessments. As regulators move toward mandatory biodiversity disclosures, the adoption of TNFD-aligned reporting frameworks and nature-related financial regulations will play a pivotal role in ensuring transparent, accountable, and science-driven biodiversity governance. 

For ESG regulators, the challenge ahead lies in establishing consistent, enforceable, and globally harmonized biodiversity disclosure requirements that drive meaningful environmental and financial outcomes. 

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