Banks linked to $800bn in annual nature destruction, report warns

A new report has warned that lending activities from public development banks is linked to around $800bn in annual damage to nature and ecosystems, according to a new report that is calling on banks to run stress tests on nature-related financial risks.

Banks linked to $800bn in annual nature destruction, report warns

More than 40% of the total $11.6trn in assets across PDBs is “highly dependent on vulnerable ecosystems” 

A new report, published on Wednesday (6 October) from Finance for Biodiversity (F4B) estimates that the value of the potential damage to nature from lending activities by public development banks (PDBs) worldwide is around $800bn annually.

The report finds that the value of ‘nature at risk’ currently equates to 7¢ for every dollar invested. PBDs – of which there are more than 450 globally – are therefore exposing themselves to a dependency on natural services that are at risk from a range of disruptive trends, including climate change and a growing population.

More than 40% of the total $11.6trn in assets across PDBs is “highly dependent on vulnerable ecosystems” such as fishers relying on declining stocks of fish, the report notes.

F4B Ambassador Jeremy Eppel said: “These publicly-owned banks should be fulfilling their mandate to foster development in a way that protects the environment. But without adequate measurement and reporting of biodiversity risks, how can their shareholder governments or their citizens know that development banks are not damaging the biodiversity and other natural resources that they committed to protect?

“Many development banks have been slow to assess nature-related risks, citing a lack of data around biodiversity and nature. Our published methodology shows that any financial institution can make a credible, first-pass, biodiversity-related stress test of its balance sheet.

PBDs are state-owned financial institutions and the report notes that the G20 is particularly exposed to nature-based risks as a result.

G20 countries have collective stakes in 28 development banks that are worth nearly $7trn, the report notes. Additionally, these countries have the majority of board votes in seven out of the eight largest multilateral development banks. They also hold large stakes in the World Bank (42%), European Bank for Reconstruction and Development (56%) and the Asian Development Bank (47%).

Separate research found that G20 member countries collectively allocated subsidies topping $3.3trn to the oil, coal, gas and fossil-fuelled electricity generation sectors between 2015 and 2019 – a level incompatible with the Paris Agreement.

That was according to a report from Bloomberg NEF and Bloomberg Philanthropies, entitled the ‘Climate Policy Factbook’. The report highlights the fact that direct support for fossil fuels from the G20 governments in 2019 topped $636bn – a decrease of just 10% since the ratification of the Paris Agreement in 2015.

As such, the F4B report calls on PDBs to better incorporate nature-risks into its planning. The report calls on the banks to publish a whole balance sheet stress test of nature-related financial risks and impacts within the next 12 months.

The report arrives just days after the French Development Agency (AFD) confirmed that it would lead a ‘Development Finance Hub’ as part of the broader network supporting the Taskforce on Nature-related Financial Disclosures (TNFD).

Senior figures from global banking giants including BlackRock, HSBC and Bank of America have been selected to help shape a new global framework from the TNFD.

The finalised framework is earmarked for release in late 2023. However, the TNFD aims to release a draft version early next year, which will be tested via an open-innovation approach with a selection of market participants.

A total of 30 new members will sit on at least one of five working groups that will each focus on defining nature-related risks; data availability; landscape of standards and metrics; development of a beta framework; and pilot testing and integration.

More than 100 institutions have also agreed to help the Taskforce through a broader consulting forum.

Matt Mace

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