UNEP FI publishes nature target-setting guidance for banks

Principles for Responsible Banking initiative urges lenders to set targets on portfolio composition and financial flows, as well as client engagement.

The UN Environment Programme Finance Initiative (UNEP FI) has published nature target-setting guidance for banks, covering recommendations on portfolio composition and financial flows, as well as client engagement.

The initiative is designed to help lenders align their strategies and portfolios with the Kunming-Montreal Global Biodiversity Framework and address nature and biodiversity loss.

It was developed with 34 signatories to the Principles for Responsible Banking (PRB) – including Santander, Barclays, BNP Paribas, Deutsche Bank and UBS – and external stakeholders including the Taskforce on Nature-related Financial Disclosures (TNFD), the Science Based Targets Network and the Finance for Biodiversity Foundation.

The guidance advises banks to assess the exposure of their portfolios to nature-related impacts and dependencies, risks and opportunities, “starting with priority sectors”. It also recommends that banks progressively report in line with the TNFD recommendations.

Once this initial foundation work is done, banks can move into the target-setting phase, it says, suggesting that this should be divided into “priority action”, “headline targets” and “additional targets”.

Client engagement

Among its suggestions, the guidance recommends that banks set a target to formally engage with their largest financing clients in identified priority sectors on their material nature-related impacts and dependencies, and resulting risks and opportunities.

“This should aim to encourage them to improve their own management of nature-related dependencies, impacts, risks and opportunities, reduce their pressures related to nature loss and disclose relevant nature-related metrics.”

As an additional target, it suggests banks could aim to engage with a number of portfolio companies in identified priority sectors to set at least one of the Science-Based Targets for a nature-related topic and/or put an action plan for nature in place based on what is most material for the company in question.

The guidance also recommends that banks set targets to provide a specified volume of lending or capital markets facilitation to contribute to closing the biodiversity funding gap. As examples, it cites lending to sovereigns and/or companies for nature-positive solutions, and the restoration or protection of terrestrial and/or marine ecosystems.

Banks are also encouraged to set targets to provide a specified volume of lending or capital markets facilitation for transition finance for clients in identified priority sectors – for example, sustainability-linked bonds or loans with defined nature-related KPIs to demonstrate and incentivise reduction of negative impacts.

To complement this, the guidance says banks should set a target to phase out financing the most harmful activities “as identified by knowledge consensus”.

Under the theme of “capacity-building, culture and governance”, the guidance recommends that banks seek to incorporate nature into the remuneration policy for senior management, including executive committees and board members.

Other areas for action and targets included in the guidance are policies and processes – including due diligence – as well as advocacy, partnerships and stakeholder ecosystem engagement.

Alongside the guidance, UNEP FI published 17 case studies from member banks to highlight work already being undertaken on the topic. These include ANZ’s climate and nature-linked financing to meat-sector clients, and Bank of Ireland’s woodland nature credits, as well as Danske Bank setting targets for engagement with clients in its lending and investment portfolios that are in sectors with high impact on nature and biodiversity.

Moving forward, UNEP FI said the PRB will continue working to advance the banking sector’s efforts on nature action, supporting signatories in implementing the guidance through training, and furthering efforts on impact targets and common metrics between financial industries.