CDP: Finance giants underestimating nature-related risks

CDP has cautioned that financial institutions are overlooking nature-related risks and opportunities in their decisions, with just 10% assessing their portfolio's impacts on forests and water.

CDP: Finance giants underestimating nature-related risks

The UK, despite its global standing, ranks among the most nature-depleted nations.

This is based on CDP’s new ‘Nature in Green Finance’ report, which analysed disclosures from more than 550 major banks, insurers, and asset owners worldwide in 2022. These institutions collectively hold a market capitalisation exceeding $8trn.

According to research from the World Economic Forum and WWF, more than half of the global GDP ($44trn), is exposed to risks linked to nature loss.

The report notes that almost 95% of financial institutions’ strategies and financial planning are now shaped by climate change, but fewer than one-third are affected by forest and water security matters.

While forest-related covenants have been integrated by 23% of banks and 21% have incorporated covenants concerning water, most financial institutions still lack the required governance structure and expertise at the board level.

CDP’s capital markets global director Claire Elsdon said: “The first step for financial institutions is to understand that climate is just one facet of environmental impact. It is important that they take stock of the extent to which their portfolio, operations, services and the businesses they support, rely on and are impacted by nature.

“Financial institutions must fully commit to addressing environmental issues holistically to better position them to capitalise on emerging opportunities.”

Indirect risk

According to the report, financed emissions, on average, exceed operational emissions by a factor of 750, with substantial regional variation: 250 times in Europe, 270 times in the Asia-Pacific, and 11,000 times in North America.

Despite limited guidance on nature-related scenario analysis, certain financial institutions are actively adopting an integrated approach, with roughly 30% intending to add forest and water considerations to their climate-related scenario analysis within two years.

The report suggests leveraging engagement as a crucial lever for investors, as shareholders can drive action by using voting rights at annual general meetings (AGMs) to signal priorities on a range of issues, including integrating nature-related considerations into corporate strategies.

It further recommends financial institutions to engage with policymakers to expedite the development and adoption of integrated environmental policies, laws, or regulations.

Taskforce for Nature Markets

The CDP report follows the recent release of a report by the Taskforce for Nature Markets, presenting suggestions to integrate nature and equity goals into global financial activities.

It suggested aligning global economic and financial systems with an equitable nature economy; harmonising financial actions with government policies; and establishing a universal nature measurement agreement to avoid greenwashing, among other things.

In addition to the financial realm, research shows that the business sector has too relegated nature and biodiversity to a secondary position in their climate strategies and plans.

In March this year, CDP unveiled its yearly report, indicating that 18,600 companies shared climate data last year, marking a 42% rise compared to the previous year. However, fewer than half of these companies disclosed information about biodiversity, and merely 1,000 revealed data on forests.

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