The role of banks in achieving global nature goals
Financial institutions can play a vital role in the fight against global nature loss by setting science-based targets and directing capital toward companies that reduce their environmental impact. That is according to a joint report by Oliver Wyman and ING, which explores environmental degradation and how banks can help finance sustainability.
Nature loss is a growing problem worldwide. If issues like freshwater consumption, unsustainable land use, and pollution are not addressed, both the planet and human survival will continue to be at risk. Although many large companies already target greenhouse gas emissions, nature loss is a distinct but equally important issue that is often overlooked.
There are several ways in which the banking sector can become more involved in tackling threats to the natural environment. For example, there are practice-based targets that follow sustainable policies; impact-based targets that focus on natural resources and are more precise and measurable; and state-of-nature targets, which aim to produce tangible improvements in the health of ecosystems where companies operate.
The financial sector has a unique opportunity to influence global nature goals by channeling investment into companies and projects that reduce environmental harm. This requires moving beyond general policies to set measurable, science-based targets.
Many banks, for instance, have already stopped financing activities that threaten protected areas and have begun screening clients for nature-related controversies. Yet more can be done – especially when it comes to setting specific, measurable goals.
Climate and nature
Cutting greenhouse gas emissions is widely seen as a major priority among industries and world leaders. The 2015 Paris Agreement remains the best-known international framework for setting specific emission reduction targets, though many countries have since developed their own net-zero goals.
However, while reducing emissions is crucial, nature loss is a separate (though related) issue that tends to receive less attention – despite being equally important. Many banks already have consistent environmental and social risk management standards (often within ESG frameworks), but many others still do not fully account for nature-related risks or the environmental footprint of certain parts of their portfolios.
“While global climate change efforts have yet to avert further increases in Earth’s surface temperatures, years of research have led to the development of scientifically aligned tools and metrics to help reduce corporate GHG emissions,” said Nick Studer, President and CEO of Oliver Wyman.
“The planet’s natural capital is intrinsically connected to the sustainability of biodiversity and the growth of the global economy. Addressing nature loss is also critical to lowering greenhouse gas emissions because of the mitigation role that forests and bodies of water play through CO2 sequestration.”
Why impact-based targets are still rare in banking
Impact-based targets remain the biggest gap in the financial industry’s capacity to meet ambitious roadmaps such as the Global Biodiversity Framework (GBF). These targets directly address the impacts that industries have on nature – similar to how carbon emission targets work – and require accurate measurement and reporting.
The report highlights one early pioneer in impact-based targets: Dutch asset management firm Robeco, which developed a reference target for a 1.4% reduction in water consumption per year until 2030, following an approach based on the Planetary Health Check – a framework aimed at protecting the stability and resilience of Earth.
There are many reasons why banks have been slow to adopt impact-based targets. Biodiversity and nature are broad, multifaceted concepts that are difficult to capture with a single metric. Climate can be measured in metric tons of carbon dioxide (or equivalent), but biodiversity and nature are more abstract.
Given the wide range of factors influencing nature – from air and water pollution to land and resource use – banks struggle with limited access to reliable environmental data and must decide which data sources and indicators to prioritize.
Many financial institutions will need to think creatively about how to set impact-based nature targets that support client engagement and reward customers for reducing their environmental impacts. Additionally, banks can play a meaningful role in helping sectors adopt more sustainable practices by engaging with clients and key stakeholders, and allocating capital where it can drive the most change.
How banks can take on nature loss now
What is clear is that swift action to halt and reverse nature loss is urgently needed. Freshwater consumption, land-use change, and pollution are three key challenges for governments and the private sector – all of which are currently operating at levels science deems unsafe for both humans and the planet.
Climate action aimed at keeping surface temperatures below 2 degrees Celsius will not be achievable unless key aspects of nature, including land use and freshwater consumption, are addressed simultaneously.
“Banks are encouraged to be proactive and take steps between now and 2030 to contribute to the global ambition to halt and reverse nature loss as set out in the Global Biodiversity Framework,” said Cornelia Neumann, Partner at Oliver Wyman.
“This means conducting assessments to identify nature hotspots in their portfolio, which in many cases will include the entire food value chain. For these hotspots, banks can then seek to understand how negative impacts on nature (like withdrawing too much freshwater, converting land, or using polluting substances) can be reduced over time and engage their customers on transition initiatives “
Beyond the private sector, governments can also play a larger role. Many countries still lack frameworks for addressing nature loss, even though it poses a risk not only to people and the environment, but also to economic stability and business interests.
