Mirtha Kastrapeli on Why Investors Need to Think Beyond Climate Alone
A conversation with Mirtha Kastrapeli, Managing Director and Global Head of the Research Institute at ISS STOXX.
Why is nature risk becoming a major investment issue?
Climate risk is now widely recognised by investors, but nature-related risk remains significantly underpriced. Yet businesses depend on ecosystem services such as freshwater, fertile soils, biodiversity, and raw materials to operate. When these systems deteriorate, companies can face supply-chain disruptions, higher costs, lower productivity, and declining profitability. The ISS STOXX Research Institute argues that investors who focus only on climate risk may be overlooking material vulnerabilities that can affect long-term portfolio resilience and returns.
How dependent are investment portfolios on nature?
The report’s analysis of a 26-company test portfolio found that 55% of revenue exposure depended on provisioning ecosystem services, particularly water and raw materials. Another 44% depended on regulation and maintenance services such as flood protection, water-flow regulation, and climate regulation. Water emerged as the most critical dependency, with surface water and groundwater together accounting for nearly half of portfolio revenue dependency. The findings highlight that many companies are far more reliant on healthy ecosystems than traditional financial analysis suggests.
Where are the biggest biodiversity risks concentrated?
The study found that 99.8% of the portfolio’s biodiversity impact stemmed from land transformation and land occupation. Agricultural and forestry-related activities, including oil-seed cultivation, food production, pulp processing, and livestock farming, accounted for the majority of impacts. Importantly, much of this exposure sits upstream in supply chains through commodities such as palm oil, timber, and rubber. This means investors can carry significant biodiversity risk even when the direct operations of portfolio companies appear relatively low impact.
How do climate and nature risks interact?
One of the report’s key conclusions is that climate and nature risks cannot be assessed in isolation. The analysis of 306 farm assets found that water stress, flooding, and wildfire are the most significant climate hazards facing the portfolio. Under a high-emissions scenario, assets with medium exposure to water stress increase from 11% in 2030 to 57% by 2050, while the number of high-risk assets rises from one to 17. Since many of these businesses are also heavily dependent on freshwater ecosystem services, climate change and ecosystem degradation can reinforce one another, creating larger financial risks than either factor alone would suggest.
What can investors do next?
The report recommends moving beyond climate-only assessments towards an integrated climate-and-nature framework. Investors need a better understanding of how ecosystem dependencies, biodiversity impacts, and physical climate hazards combine to affect company valuations and portfolio resilience. Emerging approaches such as transmission-channel analysis and landscape-level risk assessment may help investors identify vulnerabilities that traditional models overlook. Those who incorporate both climate and nature considerations into investment decisions are likely to be better positioned to manage risk, allocate capital effectively, and identify resilient long-term opportunities.
