Indebted to nature
Introduction
The loss of biodiversity has an impact on the economy. Firstly, the loss of biodiversity threatens the health of ecosystems that provide services to the economy, such as animal pollination of food crops, natural water treatment and fertile soil.1The Global Assessment of the Intergovernmental Platform on Biodiversity and Ecosystem Services (IPBES), published in 2019, shows that a large proportion of original biodiversity has been lost in many places worldwide.2 For example, deforestation not only causes nature to deteriorate, it can also cause erosion of fertile soil, rendering agricultural land unusable in the long term. Second, the loss of biodiversity and healthy ecosystems contributes to accelerating climate change. Deforestation is responsible for just over 10% of global greenhouse gas emissions.3 Biodiversity loss is therefore considered to be one of the greatest risks to society and the economy.4
Biodiversity loss is becoming an increasingly prominent issue on the national and international policy agendas. Over the next year, new international agreements will be made under the UN Convention on Biological Diversity (CBD) to increase the extent of protected areas worldwide, to promote the sustainable use of ecosystems and reduce the causes of biodiversity loss. In addition, in its European Green Deal, the European Commission (EC) presented a transition path leading to a climate-neutral Europe in 2050.5 A key part of this deal is the new biodiversity strategy in which measures are announced, such as setting up a large network of protected areas and restoring damaged ecosystems in the EU.6 In the Netherlands, the government has announced that, as part of its “Strengthening Biodiversity” programme (Versterken Biodiversiteit), it is working to improve biodiversity and halve its ecological footprint by 2050.7 There are also supplementary measures in place to reduce pressure on the nitrogen-sensitive Natura 2000 areas8 in the Netherlands,9 and companies are being urged to gain a clear picture of their negative impact on biodiversity, with the aim of lessening that impact.10 National and international policy is part of the transition to a sustainable economy that preserves biodiversity. This transition has consequences for economic activities that have a negative impact on biodiversity. The Dutch financial sector will experience such consequences through the financing of these economic activities.
In view of the potentially major economic impact of biodiversity loss, it is important that financial institutions build their capacity in time to analyse and manage the risks associated with biodiversity loss. The risks of biodiversity loss for the financial sector do not have to be simply avoided. Financial institutions can make use of various instruments to manage risks and build up resilience. For example, when granting loans, banks can ask companies to address these risks, and through engagement pension funds and insurers can raise awareness of these risks among the companies in which they invest. Furthermore, with a total of over EUR 4,000 billion in lending and investment, financial institutions have the potential to make a positive contribution to achieving sustainable prosperity while maintaining biodiversity.11
Policymakers and supervisory authorities are becoming increasingly aware of the need for a stronger focus on financial risks related to the environment. The EC’s action plan for funding sustainable growth states that sustainability should be an integral part of risk management by financial institutions.12 The EC has therefore asked the three European supervisory authorities for the financial sector13 for advice on embedding Environmental, Social and Governance (ESG) factors in the supervisory regulations. Biodiversity is included as part of the environmental factor in the recommendations made. The EC has also devised a classification system – a taxonomy – for sustainable economic activities.14 This taxonomy helps investors to understand which economic activities contribute to the environmental goals of the EC. Preserving biodiversity is one of these goals. Finally, 66 central banks and supervisory authorities, which together make up the Central Banks and Supervisors Network for Greening the Financial System (NGFS), showed in 2018 that climate-related and environmental risks are a source of financial risks and that it is therefore within their mandate to ensure that the financial system can withstand these risks.15
De Nederlandsche Bank (DNB) and PBL Netherlands Environmental Assessment Agency (Planbureau voor de Leefomgeving - PBL) explore in this report how and to what extent financial institutions are exposed to risks from loss of biodiversity.16 We must emphasise that we have not studied all the risks resulting from the loss of biodiversity. The results therefore represent a lower limit for total exposure. The choice of the risks to be studied was made partly based on the availability of financial and biodiversity data. This choice therefore does not imply that other risks might be smaller or less relevant. Moreover, potential systemic risks resulting from biodiversity loss and their possible connection with climate-related risks have not been taken into consideration. This report follows up a DNB report Values at risk?, which gave a qualitative description of the risks of biodiversity loss.
To read the full report, click HERE:
