Nature Value-At-Risk

Nature Value-At-Risk

Purpose

Nature VaR applies an approach analogous to financial stress tests and Value at Risk (VaR) to nature-related shocks, in order to estimate potential financial losses at asset, company and portfolio level.

Like VaR, the approach relies on severe but plausible scenarios, seeks to quantify exposure and potential loss, and is designed to support strategic decision-making.

Methodology

The assessment follows three steps:

1. Define nature-related shock scenarios — Scenarios are built around the degradation of natural assets (e.g. water stress, soil degradation, biodiversity erosion, air quality depletion).
2. Translate into production shocks — For each asset (office, factory, crop field...), scenarios are converted into production disruptions based on the expected degradation of the ecosystem services the activity depends on.
3. Aggregate financial losses — Production shocks are aggregated to estimate potential financial losses at asset, company and portfolio level.

Methodological grounding

The approach builds on the Ethifinance methodology for nature stress testing and value at risk, as well as ECB research on nature-related stress testing, ensuring alignment with emerging supervisory practices.