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Cambridge Institute for Sustainability Leadership

October 2021 – The University of Cambridge Institute for Sustainability Leadership (CISL) has published a preview of financial assessments of nature-related risks that highlights how risks arising from nature loss threaten companies and their financiers

Download Assessing Nature-related Financial upcoming use cases from financial institutions

Context

Ecosystems services are on the verge of collapse in one-fifth of countries worldwide, imperilling humanity. By identifying and assessing nature-related financial risks, nature can be integrated into financial decision making, recognising nature as the heart of the economy and remaking the relationship between people and the planet.

Assessing Nature-related Financial Risks

CISL and financial institutions have been conducting four assessments of nature-risks. Using the Handbook for Nature-related Financial Risks (CISL, 2021), banks and investment investors are assessing the risks posed to specific sectors and geographies by degraded land, water curtailment and the EU Farm to Fork Strategy. To complement this analysis, the institutions are also mapping nature-risks in different share indices.

Key points

The use cases being produced by financial institutions have already demonstrated that:

  1. data exists today to assess some nature-related financial risks
  2. tools are available to map financial portfolio exposure to nature-related risks
  3. some responses to nature loss (transition risks) can be modelled today with limited specialist guidance
  4. first assessments of nature risk promote engagement within financial institutions and between financiers and companies
  5. the current lack of supply chain transparency is a key barrier to assessing the scale of risks.

Dr. Nina Seega, Research Director, Centre for Sustainable Finance, CISL said:

“By assessing nature-related financial risks we move toward a financial system that accounts for nature and helps prevent catastrophic nature loss. Use cases assessing these nature-related risks are being conducted today by financial institutions with CISL, showcasing that the data and tools are already available to factor nature into lending and investment decisions.”

Next steps

Over the coming months, CISL will be publishing the use cases in full. They will inform the ongoing development of the Taskforce on Nature-related Financial Disclosures (TNFD) and can serve to help financial institutions as they start to engage portfolio companies on nature-related risks.
The uses cases contain assessments of specific nature-related financial risks, with each case limited to a particular geography, risk type and sector. Their specificity creates a straightforward method and tangible insights, informing and enabling other financiers to conduct assessments of their own. This action is needed now, to avoid the catastrophe of ecosystem collapse and runaway nature loss.

Citing this paper

University of Cambridge Institute for Sustainability Leadership (CISL, 2021). Assessing Nature- related Financial Risks: Upcoming use cases from financial institutions

Author

The authors of this paper were Grant Rudgley and Dr. Nina Seega at the CISL Centre for Sustainable Finance. They were supported at CISL by Annabel Ross, Lucy Auden and Nick Villiers.

Acknowledgements

The forthcoming use cases, upon which this paper is based, are being co-created by CISL and seven financial institutions. The research forms part of the Banking Environment Initiative and Investment Leaders Group programmes.

Without the dedication of these institutions and the individuals doing the risk assessments, the preliminary highlights presented here would not have been possible. These individuals include: Dr. Alex Kusen (Deutsche Bank), Daniela da Costa-Bulthuis (Robeco), Fiona Goulding (NatWest Group), Francesca Pedri (NatWest Group), Lucian Peppelenbos (Robeco), Özgür Göker (UBP), Mark Jeavons (AON), Markus Müller (Deutsche Bank), Marine de Bazelaire (HSBC Group), Mette Charles (AON), Regina Khal (HSBC Group), Rhona Turnbull (NatWest Group), Rupert Welchman (UBP), Simon Connell (Standard Chartered), Stephen Verheul (Robeco), Tapan Datta (AON) and Tim Manuel (AON).

We would also like to thank our Steering Group of financial institutions for their peer review: Andre Jakobs (ABN AMRO), Alexandra Basirov (BNP Paribas), Danielle Brassel (Zurich), Marek Piskorz (Lloyds Banking Group), Michael Ridley (HSBC GAM), William Wollerton (Lloyds Banking Group), Xavier Desmadryl (HSBC GAM).

Last but not least, we thank our subject matter experts, Dr Anthony Waldron and Andrew Voysey, for their invaluable guidance.

Centre for Sustainable Finance

 

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Investment Leaders Group

Published October 2021

Contact

Nina Seega

Email Nina Seega, Research Director, Centre for Sustainable Finance. 

Copyright

Copyright © 2021 University of Cambridge Institute for Sustainability Leadership (CISL). Some rights reserved.

Disclaimer

The opinions expressed here are those of the authors and do not represent an official position of CISL or The University of Cambridge.