By Dr Annaelle Hip Kam | Sustainability Scientist at Tunley Environmental
Carbon metrics helped the financial sector understand climate risk; but nature measurement reveals broader environmental dependencies, impacts, and financial exposure.
Carbon has transformed how financial markets assess environmental risk, shaping investment decisions, lending conditions, and corporate strategy. Yet, emissions metrics capture only part of the environmental risk embedded in portfolios. Nature loss can translate into water scarcity, soil degradation, biodiversity decline, and ecosystem disruption, which in turn can lead to financial losses. Understanding these risks requires finance to measure both its dependencies on nature and its impacts upon it.
Over the past decade, carbon has become the dominant lens through which environmental risk is assessed in financial decision-making. Emissions targets, transition plans and net-zero commitments now influence capital allocation, lending conditions and corporate strategy. This shift has been consequential, reframing climate change from an ethical concern into a financially material risk.
Carbon pricing shows how effectively finance can respond when a risk is clearly defined and monetised. More than 60 countries have implemented carbon pricing schemes under their Paris Agreement commitments. In mature markets, carbon credits, such as EU Allowances, trade across regulated spot and derivatives markets. Carbon pricing revenues exceeded US$100 billion in 2024, with 80 pricing instruments now in operation globally. These instruments cover about 28% of global greenhouse gas emissions in economies and represents nearly two thirds of global GDP, including about half of emissions from power and industrial sectors.
This reflects real progress. Carbon pricing works well because carbon is globally comparable. A tonne of emissions has the same climatic effect regardless of where it is released, making it suitable for standardisation, and trading. However, this success also exposes a limitation. Nature-related risk is multi-dimensional, location-specific and threshold-driven. The degradation of a watershed, soil system or habitat cannot be captured by a single, tradable unit. As a result, the same asset/ metric may be resilient in one geography and fragile in another because the binding constraint is not emissions, but water scarcity, soil degradation, regulatory pressure or ecosystem collapse.
“Beyond carbon” therefore means shifting from measuring a single environmental output to assessing nature as productive capital: the natural system that underpin economic activity. The point is not that carbon tools are flawed, but that their simplicity can create blind spots for broader environmental risk.
This article has also been published in:
SME Today, Industrial Compliance, Yorkshire Times, North East Post, Lancashire Times, Cumbria Times, Climate Global News.