Businesses and financial institutions still lack a defined strategy for addressing risks related to nature
More than half of the global economy, or USD 44 trillion in economic value creation, depends to some extent or another on nature. By 2030, nature-positive transformations could provide up to USD10 trillion in annual commercial value and 395 million new employment, according to the World Economic Forum's New Nature Economy Study II, 2020.
The WEF Global Risks report (2023) has demonstrated over the past few years that risk related to nature—which can result in not just the extinction of biodiversity but also a water crisis or the failure to slow down climate change—is becoming more probable and significant. The majority of financial institutions today are unsure of how to disclose and take action on evolving nature-related risk.
In order to test the draft TNFD beta framework, communicate their findings with their colleagues, and offer ideas to the TNFD secretariat that can motivate and enhance their strategy for financial institutions, UNEP (United Nations Environment Programme) has launched a FI-led pilot initiative.
One of the findings showed that to support reliable nature-related assessments, many financial organisations, particularly banks, have emphasised the need to upgrade their internal IT systems. In particular, given the requirement to interpret maps and location photos, biodiversity assessments can call for increased computing capacity.
Participants acknowledged the need for improved technical knowledge, noting that the climate-nature nexus and the financial risks resulting from biodiversity exposure for a given asset are still not completely understood internally in financial institutions.
Companies and financial institutions still don't have a clear strategy for dealing with these risks, despite the dangers linked with nature becoming more widely recognised.
The participants seek more guidance on specific high-impact sectors, biomes and asset categories.
There is a demand for financial product comparability due to the sheer number, complexity, and variety of financial products supplied by banks, asset management companies, and insurance companies. The respondents also highlighted the requirement for further guidance on how to evaluate the dependencies and effects on nature from many financial products because initial pilots have concentrated on studying the impact of a single financial product.
To support reliable nature-related assessments, many financial organisations, particularly banks, have emphasised the need to upgrade their internal IT systems. In particular, given the requirement to interpret maps and location photos, biodiversity assessments can call for increased computing capacity.
Many financial organisations consider risks related to nature in isolation. Institutions were able to identify the need for a variety of capabilities across teams, including risk management, data management, biodiversity knowledge, sustainability strategy, and financial product specialists, thanks to the piloting exercise.