Embed nature into financial decision making now

Posted on by triponelconsulting

Week of 1 March 2021

Embed nature into financial decision making now

When looking at our highly digitalised and technologised world, it can be easy to forget that the economy depends on the continued availability of natural resources and access to ecosystem services. Making this connection clear is crucial for the private sector according to the  University of Cambridge Institute for Sustainability Leadership (CISL). CISL provides guidance for companies to be able to accurately and meaningfully account for its dependence and its impacts on nature—both for the sake of the planet and society and large, and for its own bottom line.

 The University of Cambridge Institute for Sustainability Leadership (CISL), a research institute focused on creating solutions for a sustainable economy, has launched a Handbook for Nature-Related Financial Risks: Key Concepts and a Framework for Identification, for companies and financial institutions to assess nature-related financial risks. The handbook builds on existing thinking about calculating the value of ecosystem services and was developed with the insights of banks, asset managers, CISL’s Centre for Sustainable Finance and academics from the University of Cambridge conservation cluster.

We have highlighted below some of the key concepts covered in the handbook as a high-level guide to navigate the content.

Source: University of Cambridge Institute for Sustainability Leadership, Handbook for Nature-Related Financial Risks: Key Concepts and a Framework for Identification (March 2021)

    • The first section of the handbook answers the question, “How is nature loss a risk to financial institutions?” It outlines the types of “transmission channels” that can result in financial risks from nature loss and maps the ways in which transmission channels flow.

Source: University of Cambridge Institute for Sustainability Leadership, Handbook for Nature-Related Financial Risks: Key Concepts and a Framework for Identification (March 2021).

    • The second section of the handbook provides an overarching framework for companies and financial institutions to identify nature-related financial risks, including insights for specific sectors and guidance on using the framework.

Source: University of Cambridge Institute for Sustainability Leadership, Handbook for Nature-Related Financial Risks: Key Concepts and a Framework for Identification (March 2021)

    • The final section of the handbook defines the different types of risks that may impact institutions and breaks down the ways in which nature loss can drive these risks. 

Next steps for the framework

    • During 2021, CISL’s Centre for Sustainable finance will create use cases based on the framework to assess specific instances of nature-related financial risk.
    • With this work in mind, the handbook concludes with a call to action for the financial community: “use this handbook to start identifying nature-related financial risks. The sooner we begin the journey to embedding nature into financial decision making, the sooner we rewire our economy to protect and restore our natural world.”

You can read the full document here: University of Cambridge Institute for Sustainability Leadership, Handbook for Nature-Related Financial Risks: Key Concepts and a Framework for Identification (March 2021).

“Much attention has been devoted to the interaction between climate change and nature loss. While climate change is a substantial driver of nature loss and subsequent nature-related financial risks, others, such as water pollution, also cause considerable financial risks. By understanding and measuring nature-related financial risks, in addition to climate risk, financial institutions move a step closer to understanding how to manage these risks in their portfolio. Through that act of management, the value of nature can be recognised and a transition to a nature-positive economy catalyzed.”

University of Cambridge Institute for Sustainability Leadership, Handbook for Nature-Related Financial Risks: Key Concepts and a Framework for Identification (March 2021).