- A new study from the Dutch Central Bank (De Nederlandsche) and the Netherlands Environmental Assessment Agency examines the risk exposure of financial institutions to a loss of biodiversity
- The logic path is simple – biodiversity loss threatens the availability of eco systems such as wood, animal pollination (hence the bee above) & soil fertility. In turn various economic activities that the financial institutions fund, rely on these eco systems.
- They estimate that Dutch financial institutions worldwide have E510bn in exposure to companies with high or very high dependency on one or more eco systems.
- The report also highlights that there are risks around both reputation and transition. In terms of transition, they note that three large Dutch banks have a E81bn exposure to the move to less nitrogen intensive business models.
Analysis and Comments
- Evaluating the exposure of financial institutions to environmental change is becoming more mainstream Bank of England - what are the risks from climate change, and this report takes the debate on a further stage.
- The bank is not arguing that financial institutions should not lend to or otherwise financially support projects that face bio diversity risks. The point they are making is that banks etc should be analysing these risks in detail as soon as possible, so that they can undertake suitable risk mitigation if required.
- This is likely to require them to build their capabilities (short hand for hiring specialist staff – although is there are enough experts around who can cover both the ESG risks and who also understand banking ?) which would enable them to intelligently manage the risks. Mechanisms they discuss include direct engagement to facilitate change and the use of suitable hedges and other risk instruments.
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