Dutch central bank DNB has done a first-of-a-kind study quantifying the Dutch financial sectors’ exposure to biodiversity loss, finding that €510bn of investment is highly dependent on one or more ecosystems.
The risks, financial and societal, associated with biodiversity loss are rapidly rising up the agenda. At this week’s RI DigiFest, French Minister Brune Poirson called for biodiversity to be part of environmental disclosure efforts. Last week NGO ShareAction found none of the world’s 75 largest asset managers has a dedicated policy on biodiversity, despite the huge financial risks damage to ecosystems poses to their portfolios.
This month, Dutch financial institutions, as part of the DNB’s Sustainable Finance Platform, published a paper on how investors and banks can help curb biodiversity loss and mitigate the financial risks it poses.
Now, the DNB and the Netherlands Environmental Assessment Agency, have published research on the impact of biodiversity loss on the financial sector. It follows the DNB report Values at Risk, which explored the link between finance and different environmental and social risks such as human rights controversies and biodiversity loss.
The latest report, Indebted to Nature, marks the first time a central bank has attempted to quantify the risk biodiversity loss poses to its financial sector.
It examines €1.4trn of investments in the Dutch financial sector, and finds 36% or €510bn is highly dependent on one or more ecosystem services. “For these investments, the loss of ecosystem services would lead to substantial disruption of business process and financial losses,” the report says.
The analysis does not look at indirect dependency on ecosystems, such as the food industry’s “second order” dependency on animal pollination – needed for the cultivation of crops. “This leads to an underestimation of the dependencies of secondary industries on ecosystem services,” it says.
Loss of animal pollination ecosystems represents a physical risk for the Dutch financial sector, which has €28bn exposure to pollination-dependent products, finds the report.
The report also puts a figure on the biodiversity footprint of Dutch financial institutions, finding it comparable with the loss of over 58,000 km2 of pristine nature This is an area more than 1.7 times the land surface of the Netherlands. About half of this is the result of changing land use, and the other half is due to greenhouse gas emissions.
The calculation involved over 8,000 companies in which Dutch financial institutions invest, representing 80% of the share portfolio of Dutch financial institutions.
The report also finds that financial institutions run a transition risk as well as a reputational risk through financing companies that operate in protected or valuable areas. The exposure of the Dutch financial sector represents 71% of the total equity portfolio of Dutch financial institutions and 40% of the Dutch banks’ major loans.
The “Dutch Nitrogen Crisis” is also assessed in the report, following a Dutch High Court decision last year that forced the country to act on its high nitrogen emissions. Exposure to reputational risks, such as financing deforestation, are also assessed.
The DNB recommends that financial institutions identify the physical, transition and reputational risks to their portfolios resulting from the loss of biodiversity, and that different parties work together on consistent standards for reporting on and measuring biodiversity risks.
Earlier this year, ASN Bank, one of the members of the DNB’s biodiversity working group, launched an initiative to develop a common accounting measure for the positive biodiversity impacts of their investments.
The sustainability-focused bank’s previous work on its negative impact on biodiversity found that its investments were equivalent to an area of roughly 6,600 km2 being completely devoid of biodiversity.