7 April 2022 – The University of Cambridge Institute for Sustainability Leadership (CISL) in collaboration with banks and investment managers has detailed the case for integrating nature-related risks into financial decisions.
Nature loss poses highly material financial risks
If nature is not protected, at least USD 10 trillion of GDP will be lost by 2050 due to the decline of ecosystem services. 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.
The case for integrating nature-related risks into financial decisions
Since 2019, CISL has been collaborating with financial institutions on a programme to support the integration of nature into financial systems, creating resources for practitioners and senior management.
CISL’s latest publication, Integrating Nature: The case for action on nature-related financial risks, CISL, 2022, brings together the outcomes of that programme, providing senior management with the business case for integrating nature-related risks into financial decisions by detailing:
- Why action is need
- How action can be taken
- Use cases assessing nature-related financial risks
- What is now needed to accelerate the integration of nature into finance
Download Integrating Nature: Case for Action
Quantifying nature-related financial risks
Leading banks and investment managers – members of the Banking Environment Initiative and Investment Leaders Group – used CISL’s Handbook for Nature-related Financial Risks to assess the financial materiality of nature loss.
These use cases included:
- How soil degradation amplifies the financial vulnerability of listed companies in the agricultural value chain (Robeco)
- Impact of water curtailment on the credit rating of heavy industry companies in East Asia (HSBC)
- The EU Farm to Fork Strategy and Fertiliser Companies (Deutsche Bank and Union Bancaire Privée (UBP))
- Land degradation, UK farmers and indicative financial risk (NatWest Group)
- Mapping exposure to nature-related risks across financial indices (Aon)
Next steps
Now is the time for the financial sector to lead; integrating nature into decision making, managing nature-related risks and catalysing capital reallocation that protects and restores nature.
Building on the use cases and the case for action established by the collaboration on nature-related financial risks, CISL will be launching new projects investigating:
- How banks and investment managers can best engage portfolio companies about the risks posed by nature loss
- What financial innovations could facilitate efficient capital reallocation to economic activity that protects and restores nature
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Dr Nina Seega, Research Director, Centre for Sustainable Finance at CISL said: “This is an incredibly timely report that begins to frame the sizable work needed for financial institutions to turn their models around to be nature-considerate and also to begin the reallocation of capital so our environment is protected and regenerated. By detailing precisely how nature loss is financially material, these use cases underscore the need for action and show that financiers can assess nature-related financial risks today. This outcome demonstrates the business case for other financial institutions to engage, support and motivate analysts to create additional use cases to assess nature-related financial risks. By doing so, the risk posed by the decline of nature can be integrated into financial decisions, and the value of nature recognised by our economy.” Marine de Bazelaire, Group Advisor on Natural Capital, HSBC & TNFD Taskforce Member said: “Nature is core to our global economy. Transitioning to a regenerative business model that integrates the value of nature into financial decisions is a win-win for all. Whilst urgency and complexity set a great challenge, we as Financial Institutions need to work collectively to set the right standards and play our role as key partners to this vital transformation that will protect and regenerate nature.” James Close, Head of Climate Change, NatWest said: “Maintaining planetary boundaries and delivering long-term value for bank stakeholders creates the imperative for assessing nature related financial risks and opportunities. It a complex and evolving area that requires collaborative approaches with partners, stakeholders and peers such as this programme at CISL.” Victoria Leggett, Head of Impact Investing, UBP, said: “The Case for Action on nature-related financial risks is a timely and practical follow-up to the ‘Handbook for Nature-related Risks’. We are moving from the ‘why’ to the ‘how’ and the urgency of this next step could not be greater.” Tim Manuel, Co-Head Responsible Investment UK Aon said: ‘Aon is proud to have contributed to this important work. The urgent need to address nature-related loss must be supported by a better understanding of the risks and dependencies. This publication raises awareness and gives investors the tools to act.’ Markus Müller, Global Head of Chief Investment Office, Deutsche Bank Private Bank said: “The concept of natural capital is likely to become increasingly important in economic decision-making. ESG investment assessment needs to look at the entire (product) life cycle and across the whole company supply chain – while considering nature-related risk.” |
Citing this Case for Action
University of Cambridge Institute for Sustainability Leadership (CISL). (2022). Integrating Nature: The case for action on nature-related financial risks. Cambridge: University of Cambridge Institute for Sustainability Leadership.
Authors
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, Emily Hamm, Nick Villiers and Dr Gemma Cranston.
Acknowledgements
This case for action brings together a two-year R&D programme on nature-related financial risks. It has been led by CISL, in collaboration with 18 global banks and investment managers –at CISL.
Without the dedication of members of the Banking Environment Initiative and Investment Leaders Group and the individuals from these institutions who participated in this programme, the insights presented here would not have been possible. These individuals include: Dr Alex Kusen (Deutsche Bank), Andre Jakobs (ABN AMRO), Alexandra Basirov (BNP Paribas), Daniela da Costa-Bulthuis (Robeco), Danielle Brassel (Zurich), Fiona Goulding (NatWest Group), Francesca Pedri (NatWest Group), Lucian Peppelenbos (Robeco), Özgür Göker (UBP), Matteo Oriani (HSBC Group), Marek Piskorz (Lloyds Banking Group), Mark Jeavons (AON), Markus Müller (Deutsche Bank), Marine de Bazelaire (HSBC Group), Mette Charles (AON), Regina Kahl (HSBC Group), Rhona Turnbull (NatWest Group), Rupert Welchman (UBP), Simon Connell (Standard Chartered), Stephen Verheul (Robeco) and Tim Manuel (AON). Last but not least, we thank our subject matter experts, Dr Matthew Agarwala, Dr Anthony Waldron and Andrew Voysey, for their invaluable guidance.
