Green finance, environmental policy and technological innovation as tools for managing nature-related risk and biodiversity loss

The twin crises of biodiversity loss and climate change are putting the world's ecosystem services under pressure and intensifying nature-related risks. This poses significant threats to human well-being and economic development, as nations' economic activities depend on ecosystem services. This study adopts a novel approach and assesses countries' nature risk based on the LEAP framework. This implies mapping the ecological resources of a country and evaluating how much the country depends on these resources. Therefore, the study applies a country's ecological budget and ecosystem dependency to assess the nature risk position of 45 countries over the period 2014-2021. Since nations show different profiles in both their ecological capacity and their dependency on ecosystem services, it is assumed that nature risk mitigating measures do not have a uniform effect among all countries. We analyze this issue by grouping countries into different risk groups. The results show a positive relationship between nature risk and risks to future economic growth, measured as GDP risk. The findings also reveal that higher green bond issuance, more stringent environmental policies, and greater technological advancement are associated with nature risk mitigation by increasing biodiversity and ecological budget while reducing the ecological footprint. More specifically, these three mitigating factors seem to operate mainly through two channels: increased use of renewable energy and decreased energy intensity. Overall, the results indicate that active nature risk management can reduce countries' vulnerability to climate change and biodiversity loss and provide concrete guidance for policymakers designing nature risk mitigation strategies.