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Cambridge Institute for Sustainability Leadership (CISL)

Preventing catastrophic nature loss

8 October 2021 - Grant Rudgley, Senior Manager in the CISL Centre for Sustainable Finance, details how financial institutions can play a leading role in preventing catastrophic nature loss. 

The Amazon rainforest is on the verge of becoming a savannah. Ongoing deforestation threatens the rainfall cycle, on which the economy and remaining forest rely. The resulting regional losses alone are put at $250+ billion through 2030. Action is needed now; to avoid this and other nature-related risks.  

But avoiding catastrophe is not the only prize, the transition to a ‘nature-positive economy’1 is an opportunity, for business, government and financial institutions. All three have a stake in this transition. Anti-deforestation policies, agricultural stewardship and nature-positive investment can avert the Amazon tipping point and generate $300+ billion in additional wealth.

For financial institutions, the declining health of the natural world poses a significant risk to loans, insurance, investments and operations. By assessing the materiality of this exposure to nature loss, lending and investment decisions can evolve to favour companies who mitigate their exposure. This evolution of financial decision making is an opportunity for financiers to increase their portfolio resilience and catalyse a reallocation of capital at scale to a nature-positive economy. Government can help accelerate this reallocation by setting ambitious targets and companies by identifying how they depend on the services nature provides. 

If this all sounds familiar, it is because a similar journey is underway with climate-related financial risks. In 2016, CISL was a part of the G20 Green Finance Study Group from which various workstreams emerged about the risk of climate change to financiers. Today, some regulators are committing to conduct stress tests for climate risks and leading financial institutions are integrating them into their decision making.  

Yet climate change is only one cause of nature loss. Invasive species, land use change, resource overexploitation and pollution also damage nature and impair the services it provides humanity. The CISL Handbook for Nature-related Financial Risks, enables all the drivers and consequences of nature loss to be accounted for. Published in March 2021, the Handbook providers financiers with a method to identify and assess precisely how nature loss poses a risk to lending, investment and the provision of other financial services, tracing in detail how nature risks manifest, degrade ecosystem services and impact companies. By using the Handbook, financial institutions can map their exposure to the full suite of nature risk drivers, such as why 75 per cent of land is now degraded, rather than solely those caused by climate change.

In advance of the launch of Taskforce for Nature-related Financial Disclosures (TNFD) and the formalisation of its framework next year, the Handbook has proven to be a useful resource to those institutions in the CISL Banking Environment Initiative and Investment Leaders Group to build capacity about how – specifically – nature loss becomes a financial risk and is financially material. 

Utilising the Handbook, banks and asset managers are now producing four risk use cases to (1) illustrate how the assessment of nature risk works and (2) demonstrate the financial materiality of nature loss. Use cases are analysing:  

  • Declining soil health in the UK and South America  
  • Water stress in South East Asia and its impact on heavy industry.  
  • The EU Farm to Fork Strategy  
  • How dependent different major financial indexes are on ecosystem services.  

With a landmark summit to set global biodiversity targets commencing this month in China, CISL is publishing commentary about the role of business, policy and finance in transitioning to a nature-positive economy. Be it the opportunity of implementing nature-based solutions; the transformative potential of ambitious, quantitative policy targets for nature restoration; or how financial institutions can incorporate nature risks into lending and investment decisions, the bottom line is the same: business, policy and finance all have a stake in the transition to nature-positive. 

Find out more about CISL’s work on supporting the transition to a ‘nature-positive economy’ and how we’re working with business, government and financial institutions.

 Read a preview of upcoming financial assessments of nature-related risks.

  1. Nature-positive means halting and reversing the loss of nature by 2030 so that species and ecosystems begin to recover. It is a new operating model based on regeneration, resilience and circularity not extraction, destruction and pollution.


About the author


Grant Rudgley joined the Sustainable Finance team in September 2018 from accountants Price Bailey, where his team provided Strategy and Corporate Finance advice to innovative SMEs that would culminate in the placement of growth capital. As Lead Analyst, he led the Research and Insight function and, separately, specialised in Global Transfer Pricing advisory.


Staff articles on the blog do not necessarily represent the views of, or endorsement by, the Institute or the wider University of Cambridge.


Zoe Kalus, Head of Media  

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