Financial institutions in Germany are increasingly taking nature into account in their strategic plans, though commitments are still in the very early stages, analysis has shown.
The investigation, carried out by consultancy firm PwC and published on its blog, examined German credit institutions’ publications on strategy, risk management, and disclosures.
“Our analysis shows that credit institutions are increasingly recognising the relevance of nature, but the developments of strategic ambitions and measures on the German market, especially compared to the European context, have not yet progressed far, while the need for action is increasing,” PwC said.
Despite banks’ hesitation, a “clear trend” is emerging, PwC said, showing that nature is progressively moving up the agenda of financial institutions. In light of that, a significant shift is expected in the next few years.
PwC revealed that the majority of banks initially look at the area of biodiversity and ecosystems in their nature-related disclosures, followed by water-related topics.
Pollution has so far been taken into account mainly as a driver of biodiversity loss, while circular economy is not mentioned.
The Kunming-Montreal Global Biodiversity Framework (GBF) set an ambitious goal of $200 billion per year for nature protection, with private financing playing an important role in reaching this target.
“There are opportunities to participate in a growing market in the field of nature conservation and new technologies,” analysis says.
However, such opportunities have so far only been identified by a few pioneers, PwC noted.
DRIVERS
New market dynamics and the establishment of regulatory requirements – including the EU Corporate Sustainability Reporting Directive (CSRD) and Sustainable Finance Disclosure Regulation (SFDR), or voluntary frameworks such as the Task Force on Nature-Related Disclosures (TNFD) – are both speeding up the process.
“Insights from PwC’s audit and consulting mandates at various credit institutions have revealed that … these institutions are not only planning to disclose information on significant topics, but are also developing measures and strategies to address them.”
“It is also to be expected that other major financial institutions will join the TNFD in the coming months and years. At the same time, tools or frameworks for measuring biodiversity-related risks are being further developed, as well as reporting standards such as those published by the Global Reporting Initiative (GRI).”
As for the risk assessment, a few German financial institutions have already considered the impact of nature-related factors, the analysis said.
That’s an increasingly salient topic. In 2023, the European Central Bank (ECB) released a report addressing how the degradation of nature potentially poses additional risks to financial stability.
The study revealed that 75% of bank loans and over 30% of insurer investments in corporate bonds and equity are invested in economic sectors that heavily rely on at least one ecosystem service, “with particular dependence on services relating to surface and ground water, mass stabilisation and erosion control, and flood and storm protection”.
In May, PwC and WWF will publish a joint study on the state of implementation of biodiversity risks in German financial institutions.
By Giada Ferraglioni – giada@carbon-pulse.com
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