Banks and financial services companies increasingly recognize the urgency of addressing climate change and achieving sustainability. However, while many have committed to reducing greenhouse gas emissions, the critical issue of environmental destruction still needs to be addressed.
The scale of the problem is staggering, with around 44 trillion dollars, more than half of the global annual economic output, at risk due to the continuous depletion of natural resources, as reported by the World Economic Forum.
Furthermore, the United Nations Convention to Combat Desertification (CNULD-UNCCD) highlights that up to 40% of the Earth’s surface has already been degraded, and 87% of the oceans have been altered.
The impact of climate change on nature is also of great concern. The UN Intergovernmental Panel on Climate Change warns that if global temperatures rise by another 2°C, as set by the Paris Agreement, one in ten terrestrial and freshwater species will likely face a high risk of extinction.
Environmental agencies, governments, and regulators increasingly call on businesses across all sectors to act. Nevertheless, the response from companies could have been faster.
Accenture’s research indicates that while almost all CEOs recognize the importance of sustainability, only 17% perceive their companies’ dependency on nature and biodiversity loss as significant threats.
Moreover, the United Nations Global Compact reveals that though 80% of CEOs acknowledge their companies’ impact on ecosystems, only 35% actively engage in projects to protect or restore the environment.
Given their significant economic influence over land-dependent industries, financial services companies have a unique opportunity to lead the charge in promoting sustainability, considering their role in agriculture, transportation, and food processing.
The Task Force on Nature-related Financial Disclosures (TNFD) is developing a framework to help finance providers identify nature-related risks and opportunities, mirroring the Task Force on Climate-related Financial Disclosures (TCFD) for climate risks.
The TNFD brings together 40 individual members representing financial institutions, companies, and market service providers with over 20 trillion dollars in assets.
This approach assists businesses in integrating nature-related factors into various aspects of their operations, including governance, strategy, risk management, credit decisions, and investment choices.
Governments, the UN, and philanthropic foundations, such as the Children’s Investment Fund Foundation (CIFF), the Global Environment Facility (GEF), the Macdoch Foundation, and the United Nations Development Programme (UNDP) provide help to the TNFD to ensure the success of these initiatives.
While disclosing nature-related risks is not yet mandatory, regulators and governmental agencies will likely impose such requirements soon. Therefore, financial services companies must not wait for external pressures to incorporate nature-related exposure into their sustainability initiatives.
The time to act is now. Banks, insurers, wealth managers, and other capital providers are crucial in protecting our planet for all its inhabitants. By actively engaging in sustainable practices and supporting initiatives like the TNFD, these institutions can lead toward a more sustainable and resilient future.
