Companies That Manage Nature Will Outperform. Here Is Why.
Nature and biodiversity are emerging topics in business with significant implications for sourcing, capital allocation, and resilience planning. Yet corporate executives and board members are delaying action on nature until they have the answer to a vital question:
Do companies that manage nature outperform those that don’t?
The answer is yes. Companies that effectively manage nature and nature-related risks will both have better financial performance and lower cost of capital. Here’s why:
While it is often framed as values-driven, managing nature risk is a matter of disciplined risk governance, critical to surviving times of economic disruption and transition. The disruption will stem from the loss of ecosystem services and worsening climate impacts, affecting supply continuity, asset values, and operating costs. Meanwhile, the transition to a regenerative economy is being driven by national policies under the Global Biodiversity Framework.
Frameworks such as the Taskforce on Nature-related Financial Disclosures (TNFD) guide firms to assess how nature-related risks and opportunities affect strategy, operations, and financial outcomes. The value of adopting the TNFD lies in improving how companies manage risks and uncover opportunities. While meeting disclosure expectations can support access to better financing terms, that benefit is secondary to the broader risk management perspective the TNFD brings in this era of rapid change.
Onboarding nature risk alongside the many other risks that a global corporation must manage can feel daunting. However, it is well established that companies with strong governance are better equipped to make clear, timely decisions under uncertainty, and are therefore better positioned for success during periods of transition.
We have seen this pattern before. With Diversity, Equity, and Inclusion (DEI), companies learned that more diverse leadership leads to improved decision-making and strengthened financial performance. Later, climate risk management showed how integrating emerging risks early on could protect business performance in the long term. Nature risk management will deliver similar financial benefits, providing economic advantage to companies that embrace it as part of the transition to the regenerative economy.
When DEI Became a Business Imperative
For decades, diversity was viewed strictly as a compliance issue or reputational consideration. In the mid-2010s, however, evidence began to link diverse leadership to financial performance:
McKinsey’s Why Diversity Matters report found that companies in the top quartile for ethnic and racial diversity in management were significantly more likely to outperform their industry average financial returns.
Credit Suisse Research Institute reported that firms with at least one woman on the board achieved higher average returns on equity and stronger growth than those with all-male boards.
Why has DEI led to better performance? Diverse teams are much less prone to “groupthink,” better at identifying blind spots, and more effective at navigating complex situations. As a result, there has been significant corporate investment in the last decade to increase diversity at the board and executive levels in order to improve decision-making and long-term financial performance.
Climate Risk Becomes Financial Risk
Climate risk followed a similar trajectory. Early climate initiatives emphasized corporate responsibility and reputation, but momentum accelerated when the financial risk associated with climate change became undeniable:
Huang et al. (2022) showed that firms with higher exposure to climate risk experience poorer and more volatile earnings, and are forced to adjust their financing strategies accordingly. Specifically, as climate risk increases, firms hold more cash and rely more on long-term debt.
Reports such as the Stern Review and the World Economic Forum Global Risks Report highlight the significant potential economic losses associated with climate change.
Evidence has shown that companies with unmanaged climate risk can face higher cost of capital, lower valuations, and increased supply chain volatility. As climate risk became financially material, it shifted how executives thought about capital structure, financing strategy, and long-term investment decisions, moving climate from a reputational issue into the core of financial and operational governance. We are now seeing firms take steps to integrate climate risk into strategy, finance, and operations. As a result, those who have managed their exposure are less likely to be blindsided by climate-related disruptions that could threaten their financial performance.
Nature is the Next Frontier
Assessing nature risk offers the same core benefits of DEI and climate risk integration. It enables better decision-making, earlier risk identification, stronger governance, and long-term resilience. By mapping their interfaces with nature, firms can identify vulnerabilities, including supply-chain fragility, asset exposure, regulatory shocks, and reliance on declining ecosystems. This allows firms to address risks before they escalate, or avoid the financial and reputational impact of regulatory compliance issues.
Early movers will have a significant advantage. As banks, insurers, and investors continue to integrate nature-related risk into their lending decisions, underwriting, and portfolio construction, companies that demonstrate credible nature risk management are increasingly seen as lower-risk candidates. This can translate to lower insurance premiums, improved loan terms, and reduced cost of capital. Nature analytics already influence how risk is priced on the market, and companies that measure and manage their exposure stand to benefit significantly.
The data will come, just as it did for DEI and Climate. But the leaders who succeed in the long term will be the ones who recognized the pattern and started looking through the lens of nature today. The next question to ask is:
Are we effectively managing nature risks and in a position to lead the regenerative economy?
