The ‘Nature in Green Finance’ report, recently released by CDP, offers a comprehensive analysis of disclosures from over 550 major financial institutions worldwide. The institutions included in the survey boast a total market capitalization exceeding $8 trillion as of 2022. However, the report raises significant concerns regarding the integration of nature loss and climate change risks into their financial decision-making processes.
The importance of nature and biodiversity in financial decision-making is further evidenced by research from the World Economic Forum and the World Wildlife Fund. Their findings indicate that more than half of the global GDP, amounting to $44 trillion, is exposed to risks associated with nature loss. Despite this, nature and biodiversity often find themselves relegated to secondary considerations in the climate strategies and plans of the business sector.
The CDP report further details the risk assessment practices of 150 global financial institutions. The results are concerning. A mere 42% of banks and 29% of insurers consider both climate change and biodiversity loss in their risk assessments. This lack of integrated risk assessment points to a critical blind spot in the global financial landscape.
Moreover, the study found that only 6% of the institutions surveyed have policies in place to tackle deforestation. Even fewer, a scant 1%, have policies aimed at combating land degradation. These figures underscore the need for more robust, comprehensive strategies to address the environmental impacts of financial decision-making.
The report suggests that investor engagement could play a crucial role in shifting these priorities. By engaging with institutions and integrating nature-related considerations into corporate strategies, investors can help to signal the importance of these issues.
Critically, the report emphasize the need for financial institutions to integrate nature-related risks into their decision-making processes. Failure to do so could lead to significant financial losses. The onus, therefore, falls on both investors and institutions to recognise and address the inherent risks associated with nature loss and climate change to ensure a sustainable financial future.
