Building Capacity to Identify and Assess Nature-Related Financial Risks

26 June 2025 – A use case developed as the result of a collaboration between CISL and three banks DBS, OCBC, UOB and supported by the Monetary Authority of Singapore (MAS), shows how banks can build internal capacity to better understand the nature risks and dependencies in their portfolios exemplified on the palm oil industry.

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This use case focuses on hypothetical scenarios of nature loss in Indonesia and Malaysia, triggered by an intensified El Niño climate phenomenon, impacting ecosystem services critical to the palm oil industry. The analysis was extended to examine the resulting financial implications for the banks’ credit lending portfolios. The scenario created is a climate–nature loss scenario, designed to answer the question of “What would be the potential implications on banks’ lending portfolios to the palm oil industry in Indonesia and Malaysia under a severe and disruptive climate–nature loss scenario?”

Broadly, the analysis of 16 samples concluded that:

• upstream players, compared to integrated players, were more sensitive to the impact of nature-related risks.
• companies with relatively better financial strength were more resilient to the short-term acute stress
• overall, the impact on companies was limited, especially for the mild scenario, although for certain companies in the severe scenario, the impact was elevated. Further assessment is needed in order to evaluate the portfolio-level impact.

This scenario analysis emphasises the importance of understanding nature-related dependencies as a potential risk factor in the credit risk analysis, and the complexities of the transmission mechanism of nature loss events to the financial strength of companies. If society continues to erode nature, impacting the nature-based services on which all businesses depend, considering those dependencies and risks will become increasingly important.

Citing this report

University of Cambridge Institute for Sustainability Leadership (CISL). (2025). Building capacity to identify and assess nature-related financial risks. Cambridge, UK: Cambridge Institute for Sustainability Leadership.