The Emergence of Foreseeable Biodiversity-related Liability Risks for Financial Institutions: A Gathering Storm?

▪ Financial supervisors and their regulated entities are under increasing pressure to consider the financial risks associated with the loss of biodiversity and ecosystem services at both a macro- and micro-economic level. Recent economic literature identifies liability as a key category of foreseeable financial risk associated with biodiversity loss. However, it does not provide further guidance on the nature and extent of litigation and legal risks that should be considered in determining the potential materiality of relevant risks for a given financial actor or system.
▪ This report complements and extends the economic literature by proposing a framework by which biodiversity-related liability risks should be considered by financial sector supervisors and participants in their broader assessment of biodiversity-related financial risks.
▪ Consistent with the emerging nature of biodiversity-related financial risk assessment, this report takes a forward-facing view of potential liability exposures. It recognises that biodiversity-related liability exposure is not limited to prevailing categories of 'environmental' law claims. Rather, it draws analogies from legal developments on other dynamic risk issues such as climate change to propose an extended framework of potential exposures under environmental, commercial, tort and other laws.
▪ The framework provides a holistic perspective on the spectrum of biodiversity-related liability risks that should be considered as part of a broader analysis of related financial risk exposures, and provides general commentary on the circumstances and actors where it is likely to present heightened concerns. In doing so, it provides a foundation for further analysis of the materiality of relevant biodiversity-related liability risks in the unique context of each financial institution and system.