- New CDP report reveals nature consistently overlooked in financial decision-making by most financial institutions, despite stepping up climate considerations.
- Gaps in accounting for nature reported across governance, strategy and implementation, risk management, and metrics and targets mechanisms of most financial institutions.
- Greater opportunities than risks being identified by financial institutions across climate, forests, and water - with identified and reported climate and nature opportunities, estimated at over US$5 trillion, mostly left untapped.
- Increased data on combined climate and nature-related opportunities enhances green financing solutions to support businesses in mitigating deforestation and water loss.
- Financial institutions must step up responsibility to demand credible and comprehensive data to drive transformative change throughout the financial system
[London, 17 August 2023] – Financial institutions (FIs) are failing to account for nature-related dependencies, risks and opportunities in their financial decision-making, according to ‘Nature in Green Finance’ – a newly launched report by CDP. The report, which identifies significant gaps in how FIs oversee, implement, manage, and measure nature-related impact compared to climate change, urges 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.
The ‘Nature in Green Finance’ report is based on an analysis of disclosure made through CDP in 2022, by over 550 of the world’s largest banks, insurers and asset owners, representing over US$8 trillion in market capitalization. The report finds that while nearly 95% of FIs’ business strategies or financial planning are now influenced by climate change, less than a 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. 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 capitalizing on these opportunities.
Financial institutions play a pivotal role in catalysing transformative change across the financial ecosystem. They can implement necessary internal mechanisms that enhance robust decision-making, and simultaneously step up their responsibility to demand credible and comprehensive data. Banks are already leading by establishing governance and board-level expertise to integrate nature-related issues across their operations.
Engagement can also be a crucial lever through which investors, as shareholders, can drive action by exercising their voting rights at annual general meetings (AGMs) and signal their priorities on a broad range of issues, including integrating nature-related considerations into corporate strategies. Similarly, through engaging with policymakers FIs can hasten the development and adoption of integrated environmental policies, laws, or regulations.
Aided by actions by governments, regulators, supervisors, and standard setters, a proactive engagement approach by FIs can accelerate the development and implementation of effective strategies that support climate and nature-informed strategic decisions and catalyse transformative change across the financial ecosystem.
Claire Elsdon, Global Director, Requesting Authorities - Capital Markets, 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.”
Elsdon continued, “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 decarbonize their portfolio and meet net-zero ambitions.”, she added.
Only through intentional and robust environmental actions, backed by comprehensive regulation, can FIs continue to lead the charge in achieving net-zero ambitions, and succeed in future-proofing portfolios and build a resilient global financial system.
For more information and to access the full report, please visit the report webpage.
Note to Editors
Additional information on the ‘Nature In Green Finance’ Report:
- The responses from FIs, which marked a 67% increase since the sector-specific questionnaire's inception in 2020, saw 272 FIs disclose on forests-related impact and 275 FIs disclose on water security for the first time, while over 260 FIs disclosed on all three themes, including climate change.
Highlights of the report findings include:
- Banks are leading the way on governance mechanisms and board-level expertise to integrate nature-related issues across their operations – 23% of banks have started including forest-related covenants, and 21% have some covenants related to water. However, broadly, most FIs lack the necessary governance mechanism and board-level expertise.
- Only 10% of FIs currently measure their portfolio impact for forests and water, however, an additional 30% plan to do so within the next two years.
- An increasing number of FIs are identifying greater climate and nature-related opportunities compared to risks, however, less than 30% are capitalizing on this to provide green financing solutions that support businesses in mitigating deforestation and water-related impact.
- Average reported financed emissions are 750x larger than operational emissions, and vary significantly across regions – 250x in Europe, 270x in the Asia-Pacific region, and 11,000x in North America.
- Meaningful target setting, a critical aspect of the transition to net zero, remains a significant challenge for most FIs, with just 29% having set portfolio targets for climate change.
- Despite the lack of mainstream guidance on nature-related scenario analysis, some leading FIs are proactively taking an integrated approach by incorporating forest and water-related factors into their climate-related scenario analysis.
CDP Media contact
Toyosi Adebayo | [email protected]
CDP is a global non-profit that runs the world’s environmental disclosure system for companies, cities, states, and regions. Founded in 2000 and working with more than 740 financial institutions with over $130 trillion in assets, CDP pioneered using capital markets and corporate procurement to motivate companies to disclose their environmental impacts, and to reduce greenhouse gas emissions, safeguard water resources and protect forests.
Nearly 20,000 organizations around the world disclosed data through CDP in 2022, including more than 18,700 companies worth half of global market capitalization, and over 1,100 cities, states and regions. Fully TCFD aligned, CDP holds the largest environmental database in the world, and CDP scores are widely used to drive investment and procurement decisions towards a zero carbon, sustainable and resilient economy.
CDP is a founding member of the Science Based Targets initiative, We Mean Business Coalition, The Investor Agenda and the Net Zero Asset Managers initiative.
Find out more via www.cdp.net or follow us on Twitter @CDP.