Financial Exposure to Biophysical Risk

Translating biophysical overshoot into financial metrics: Direct and indirect costs, sectoral fragility, and risk transmission through capital markets.
Data: Stockholm Resilience Centre, IMF, Nature Geoscience, 2025
Biophysical Risk Premiums in Financial Modeling
Scenario-Adjusted Discount Rate
High
Depletion Risk Premium
Medium
Asset Write-downs
Severe
Cash Flow Volatility
High
Credit Rating Impact
Medium
Asset-Level Vulnerability by Sector
Agriculture
Yield volatility
Pollinator loss, drought, phosphorus/nitrogen runoff
Chemicals
PFAS liability
Novel entity regulation, water withdrawal
Real Estate/Utilities
Asset impairment
Sea level rise, salinization, storm risk
Mining
Stranded assets
Water scarcity, land-system change
Boundary Feedbacks and Tipping Elements
Boundary
Key Feedback
Tipping Element
Amplification Risk
Climate change
Permafrost thaw, AMOC slowdown
Greenland Ice Sheet, AMOC
High: triggers biosphere, land, freshwater collapse
Biosphere integrity
Deforestation, pollinator loss
Amazon Rainforest, coral reefs
High: amplifies climate and food risk
Biogeochemical flows
Nitrogen, phosphorus runoff
Coastal dead zones
Medium: amplifies biosphere and ocean risk
Land-system change
Deforestation, fragmentation
Amazon, boreal forests
Medium: amplifies climate, freshwater risk
Freshwater use
Drought, overuse
Monsoons, aquifers
Medium: amplifies food, biosphere risk
Ocean acidification
Coral reef collapse
Coral reefs
Medium: amplifies food, insurance risk
Atmospheric aerosols
Monsoon disruption
Asian monsoon
Medium: amplifies water, ag risk
Novel entities
PFAS, plastics, chemicals
Unknown
Emerging: amplifies biosphere, ocean risk
Stratospheric ozone
Ozone depletion
Polar vortex
Low: currently stable
Red: high; Yellow: medium; Green: low amplification risk.
Insights:
  • Financial risk from biophysical overshoot is direct (impairment, fines, scarcity) and indirect (supply chain, insurance, reputation).
  • Asset and sector vulnerability is highly heterogeneous-location, sector, and supply chain mapping are essential.
  • Traditional financial models underestimate risk; scenario-adjusted discount rates, risk premiums, and asset write-downs are now required.
  • Justice: The top 10% of consumers drive 67% of boundary breaches-targeted policy and capital allocation can reduce systemic risk.
  • Systemic risk transmission means boundary breaches can trigger market-wide repricing and contagion, not just isolated losses.

Financial Exposure to Biophysical Risk