Banks ‘largely blind’ to nature loss risks to portfolios, report warns

investmentnews.com:

Most financial firms aren’t assessing their portfolio exposure to nature-related risks with the same urgency they use to measure climate impacts, a shortcoming that could lead to higher costs, litigation and a hit to reputations, according to a new report.

Only 20% of financial companies measure their exposure to nature-related risk compared to the 85% who calculate their potential vulnerability to climate impacts, according to the report by CDP, which helps companies disclose environmental impact. The analysis was based on disclosures made to the non-profit last year by more than 550 banks, insurers and asset owners representing about $8 trillion in market capitalization.

“Consideration of nature is not yet a priority for most” finance firms, said CDP. They “remain largely blind to the risks.”

One of the key risks is higher costs. BNP Paribas SA told CDP that if banks are seen to be contributing to deforestation they could face potential financial risks “in the order of 25% of their market value” arising from litigation, reputation loss and other factors. Financial institutions are also exposed as a result of their lending and underwriting activity to businesses. The World Economic Forum estimates that $44 trillion of economic value generation – over half of the world’s total GDP – is moderately or highly dependent on nature and its services.

Since the signing of the Paris climate agreement in 2015, banks and money managers have faced growing pressure to gauge the threat posed by a warming planet, as well as their contribution to it. Yet researchers have also warned that the main goal of the pact — to limit warming to 1.5C — can’t be met without protecting and restoring nature. Land-based and marine ecosystems, for