On December 26, 2004, a massive undersea earthquake triggered a tsunami that left 230,000 people across Southeast Asia dead. Almost everyone, both human and animal, was caught off guard, with a notable exception: elephants. In places like Thailand and Sri Lanka, elephants became agitated hours before the waves hit. Wild elephants fled to higher ground, and captive ones defied their handlers, sometimes with tourists still on their backs. Sensing low-frequency vibrations undetectable to most species, they acted on early warning signals – and were far more likely to survive.

Today, another, far larger disaster is brewing, as rapid planetary warming and escalating environmental degradation threaten every sector of the global economy. And while many investors continue with business as usual, as if unaware of what is coming, one group is attempting to get out of harm’s way: long-term asset owners, such as pension funds and sovereign wealth managers.

These investors, unlike hedge funds or private equity firms, take a generational view of the assets they manage. They cannot afford to ignore the inextricable link between global financial stability and environmental stability, an awareness reflected in new initiatives like the Debt Suspension Clause Alliance and the Global Hub for Debt Swaps for Development. While some claim that accounting for climate change amounts to “mission creep” for global financial stewards like the International Monetary Fund ( IMF ), bellwether investors recognize that nature and climate risks will materialize in near- and medium-term shocks, affecting every facet of the global economy.

So, even as many shareholders and CEOs remain focused on quarterly results, long-term asset owners have begun to scrutinize companies for natural-capital risk, in order to anticipate environmental shocks that could reduce the long-term value of their assets. Norway’s Government Pension Fund Global, which manages US$1.7 trillion in assets, is now assessing a whopping 96% of its portfolio for such risk. This is not some internal refinement of environmental, social and governance ( ESG ) pledges; it is a major institutional change.

Norway is not alone. Finland’s State Pension Fund recently began exploring ways to quantify nature-related financial risks in relation to long-term pension liabilities. And Temasek Holdings in Singapore has started using satellite monitoring and biodiversity data to evaluate natural-capital risks and opportunities.

At a time when ESG frameworks have become a flashpoint in political and culture wars, there can be no doubt that these actions are driven not by political pressures or social trends, but by pragmatism – and a growing sense of urgency. Already, extreme weather, biodiversity loss, water stress and resource scarcity are disrupting economies, with vulnerable low-income countries especially hard hit.

In 2022, floods in Pakistan devastated agriculture – which employs 40% of the workforce – driving up food prices and pushing the country to the brink of default. In Indonesia, deforestation and peatland degradation from unsustainable palm oil production led to the imposition of a temporary export ban in 2022. In Brazil and Ethiopia, rising temperatures and erratic rainfall have slashed coffee yields in recent years, causing global prices to spike and undermining rural incomes and export revenues.

High-income countries are far from immune to these risks. In the United States, prolonged droughts are reducing crop yields from Arkansas to Oklahoma, forcing farmers to drill deeper wells and switch to less profitable crops. Meanwhile, climate-related disasters, such as hurricanes and wildfires, are causing home insurers to raise premiums, reduce coverage and even exit high-risk regions. In Europe, nature-related risks have affected olive oil production in Italy and Greece; wine grapes in France, Italy, and Spain; timber supplies in Central and Northern Europe; fishing in the Mediterranean; and transport on the Rhine and Danube rivers. And this does not even begin to cover the vast human costs of the nature and climate crisis, evident in places like Valencia and Texas.

Yet such risks have not been adequately priced into financial models. This is partly because data on natural capital, unlike on greenhouse gas emissions, remain fragmented, inconsistent, and difficult to access. The risks are complex and systemic – water scarcity, biodiversity loss and climate change cut across sectors and borders, triggering cascading effects – and there are no measuring or reporting standards in place. As a result, most banks lack the information they need, especially location-specific data, to evaluate borrowers’ environmental dependencies.

But new tools are emerging that can help close these gaps. For example, Exploring Natural Capital Opportunities, Risks and Exposure is a free online tool that helps financial institutions identify nature-related risks to which they are exposed through their lending, underwriting and investment in high-risk industries.

Moreover, the Taskforce on Nature-related Financial Disclosures has devised a set of disclosure recommendations and guidance aimed at helping businesses and financial institutions integrate nature into their decision-making. Some central banks have developed integrated scenario models aimed at assessing the impact of climate- and nature-related risks on the economy and financial system. Add to that new biodata technology, and the means to act are already here. Investors do not need to fly blind.

This is no longer a matter of awareness. With investors already confronting the financial consequences of ecological instability – from stranded agricultural assets to declining sovereign-credit ratings in climate-vulnerable economies – there can be no doubt that nature risk is financial risk. Asset owners, central banks and institutions like the IMF now have a responsibility to integrate this recognition into all their activities – before the next preventable shock materializes. The institutions that lead will be those willing to move beyond silos, align capital with planetary boundaries, and invest not only in markets, but also in the systems that support them.

Patrick Odier is the chair of Building Bridges and the Supervisory Board of Lombard Odier Group.

Copyright: Project Syndicate