E Fund Management (E Fund), in collaboration with the International Institute of Green Finance (IIGF) at the Central University of Finance and Economics, has developed an innovative biodiversity risk assessment methodology. Based on the ENCORE tool, this methodology categorizes and evaluates both environmental impacts and dependencies of corporate activities on areas such as air quality, habitats, landforms and minerals. AI is then applied to automatically identify and assess relevant data from publicly available corporate disclosures, such as corporate annual reports. The same methodology is used to assess how companies manage their biodiversity risks.Using the IIGF Biodiversity Risk Exposure Database for Chinese-listed Companies,39 E Fund analyses its fund holdings, compares them with similar products, and assesses their exposure to biodiversity risks. If a fund shows significant risk, a transparency mechanism triggers a more detailed analysis of its core holdings. While the biodiversity risk assessment methodology has room for improvement, it has already enabled E Fund to conduct preliminary biodiversity risk screening on a vast portfolio of assets, making active engagement in biodiversity- related projects possible.40Developing nature-related risk assessment based on corporate disclosuresThe lack of established analytical models, methodologies and tools for assessing the environmental impacts of corporate behaviour remains a significant barrier to the advancement of nature finance. Financial institutions often struggle to accurately price nature-related risks and assess long-term biodiversity outcomes. In addition to addressing these challenges through improved data and supportive policies, a complementary approach involves using longitudinal analysis of corporate business performance and industry benchmarking – both of which can be derived from publicly available corporate reports. By tracking performance over time and comparing it with industry peers, financial institutions can develop a preliminary understanding of a company’s nature-related risks and identify potential entry points for nature finance. This approach can help address the challenge in pricing and evaluation by providing a more practical and accessible framework for assessing biodiversity- related impacts. Nature finance faces four inherent challenges associated with ecosystem-related projects: quantification, transaction, collateralization and monetization.41 To overcome these hurdles, several innovative business models have been observed in China:A. Blended public-private capital with risk sharing: Combining low-return, high public- good biodiversity projects with high-return, commercially viable nature-based projects can optimize risk-sharing and ensure that financial returns are aligned with the distribution of benefits.Innovating methodologies and tools for pricing and evaluation Exploring and scaling innovative business models to address commercial viability challenges3 4 19

Nature Related Sustainable Finance in China 2025