Financial institutions (FIs) are failing to account for nature-related dependencies, risks and opportunities in their financial decision-making, according to analysis from CDP.
Its report, ‘Nature in Green Finance’, identifies significant gaps in how FIs oversee, implement, manage, and measure nature-related impact compared to climate change. As a result, CDP is urging that “action must first begin with system-wide recognition of the intrinsic link between impacts on climate and those on nature”.
The CDP report concludes that success in building a green and resilient financial system ”necessitates leadership and action from FIs informed by credible and comprehensive data”.
CDP’s report is based on an analysis of disclosures made through CDP in 2022 by more than 550 of the world’s largest banks, insurers and asset owners, representing over US$8trn (€7.3trn) in market capitalisation. The report found that while nearly 95% of financial institutions’ business strategies or financial planning are now influenced by climate change, less than one-third are influenced by forest issues and water security.
Failure to integrate nature and climate considerations impedes the ability of FIs to fully identify and assess and disclose their impact, dependencies, risks, and opportunities, CDP said.
The non-profit organisation that runs the global environmental disclosure system for companies added that ”most FIs lack the necessary governance mechanisms and board-level expertise to integrate nature-related issues across operations and just one in ten FIs currently have the metrics to measure their portfolio impact for forests and water”.
”Moreover, despite greater opportunities, estimated at over US$5 trillion for climate, forest, and water combined, being identified than risks, less than 30% of financial institutions are capitalising on these opportunities.
Claire Elsdon, global director, requesting authorities - capital markets, at CDP, said: “It is encouraging to see that in the two years since we published the CDP Financial Services Disclosure Report 2020, financial institutions have made significant progress in integrating climate change considerations in their financial decision-making. Collectively, FIs must now integrate nature and elevate it alongside climate as a priority across their strategies and financial planning.”
She added: “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; offer green financing solutions that support businesses in mitigating deforestation and water-related impact; get ahead of upcoming reporting requirements; rapidly decarbonise their portfolio and meet net-zero ambitions.”
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