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If our forests could speak: nature-related financial risks and opportunities


“Could we not argue that it is actually a long-term value optimisation decision to include sustainable impact in investment decisions to make financial sector business models future proof?” That is what Marc Reinke, head of DNB’s Sustainable Finance Office, said at the Finnish Finance Nature Summit, in Helsinki on 20 November. He talked about what the community of central banks and supervisors is doing to address nature degradation and the financial risks associated with it, and what the financial sector can do.

Published: 20 November 2023

Marc Reinke

Date: 20 November 2023
Speaker:Marc Reinke
The Finnish Finance Nature Summit

Hyvää huomenta! In case that made no sense whatsoever: good morning! It is an honour and pleasure to speak before you today.

When I was preparing for today’s address, I came across a saying that provided me some valuable insight into Finnish culture and society: Niin metsä vastaa, kuin sinne huudetaan. “The forest answers in the same way one shouts to it”. I interpret it as “you reap what you sow” – a highly topical saying given the subject of today’s summit and my opening remarks.

Finnish people seem to have an almost mythical bond with nature and the ecosystems around them. I found at least eight different ancient Finnish deities representing different aspects of nature. And this bond between the Finns and the natural world is still very strong today. A survey conducted in 2021 found that 87% of Finns consider nature very important in their lives, as it provides them with something no euro coin or note can: intangible wellbeing. Peace of mind, recreation, energy, recuperation, relaxation – the list goes on.        

But more than half of the survey’s respondents said they were concerned about the state of nature in their country. Had I been surveyed about the state of nature in the Netherlands, I would have said the same thing. Humanity is asking too much of nature, and we are crossing planetary boundaries at an alarming speed. There are nine natural processes that are critical for maintaining the stability and resilience of the earth. For six of them, we are exceeding our planet’s safe operating limits. As a consequence, we increasingly run the risk of going over the earth’s tipping points. Beyond those tipping points, we should expect irreversible damage.

We are degrading nature and biodiversity at an unprecedented rate. A few examples: wildlife populations have declined by almost 70% since 1970, and the global rate of species extinction is now tens to hundreds of times higher than it has been in the last 10 million years.

We have been yelling at our forests, our seas, our mountains. At the living and non-living elements on our planet. And they have answered. In ways we should be gravely concerned about.

Not just because living in harmony with nature gives us all those great things you enjoy here in Finland. But also because we care about economic and financial stability. We depend on nature for food, medicine, energy, clean air and water, security from natural disasters, recreation and cultural inspiration. Our economies rely on nature. As ECB board member Frank Elderson remarked earlier this year: “Destroy nature and you destroy the economy”.

Two weeks ago, the ECB published a paper in which it concluded that almost 75% of corporate bank loans in the euro area are granted to corporations that are highly dependent on at least one direct contribution from an ecosystem, a so-called ecosystem service. This dependence could result in significant losses for banks if nature continues to deteriorate. Finnish corporations, the study finds, are among the most dependent on ecosystem services, and more than 85% of loans from Finnish banks are highly dependent on nature.    

The president of the Dutch central bank, Klaas Knot, has said that when it comes to solving the climate and nature crisis, central banks and supervisors may not be in the driver’s seat – as that’s where elected officials should sit – but that we are definitely part of the team. Nature degradation and the financial risks associated with it are squarely within our mandate.

Today, I want to talk to you about what our community of central banks and supervisors is doing to address this huge challenge. And about what I think the financial sector can and must do.

The Network for Greening the Financial System, or NGFS, is an organisation made up of 127 central banks and supervisors, including the central banks of Finland and the Netherlands. Because we need a global approach to address sustainability-related challenges – they do not stop at our countries’ borders. With this in mind, the NGFS focuses on topics that are crucial to central banks and supervisors around the world, providing expertise, capacity building support and training. In 2022, it established a taskforce to integrate nature-related risks in all its activities. This September, it published a conceptual framework to give the financial ecosystem a common language, and to help it understand the material risks it runs as a result of nature degradation.

Like climate-related risks, nature-related risks come in two categories. First, the degradation of nature and loss of ecosystem services pose physical risks. Second, there are transition risks, which are the result of a misalignment of economic actors with measures to protect, restore or reduce negative impacts on nature. These risks can have economic consequences both on a micro and macro level that should be of concern to the financial sector, as they could ultimately threaten the continuity of individual financial institutions or even destabilise the entire financial system.

But I also have to point out that financial institutions are not just victims here. They have an impact on nature-related risks – risks they need to manage, for instance through the economic activities they finance.      

The conceptual NGFS framework will help us streamline the analysis of nature-related risks and identify appropriate measures. It has also revealed the need for scenarios to facilitate forward-looking risk assessments. Such a scenario could, for instance, help a financial institution understand what the multi-year consequences of a nature-related transition policy could be. Less than a month from now, the NGFS taskforce will publish a technical document with specific recommendations for the development of these kinds of nature-related scenarios. Going forward, we will continue to explore how efforts to bridge data gaps, for instance through disclosure guidelines, frameworks and standards created by stakeholders such as the TNFD and ISSB, can strengthen and supplement our work.

Individual central banks and supervisors are also increasingly recognising nature-related risks as a key theme. The Dutch central bank, DNB, was one of the first of its peers to explicitly identify biodiversity loss as a potential driver of financial risk in its 2020 report “Indebted to Nature”. In this report, we analysed the total exposure of financial institutions and the potential impact of biodiversity loss on the economy and the financial system.

That same year, the ECB published a guide on climate-related and environmental risks in which it set supervisory expectations related to risk management and disclosure. Because as supervisors of financial institutions, our primary concern is prudent risk management. The ECB’s guide sets out good practices on topics like business models, strategy, governance, risk appetite, risk management and disclosures. After concluding in 2022 that the sector was still by no means adequately managing these risks, the ECB set staggered deadlines for banks to progressively meet all supervisory expectations by the end of 2024. If these deadlines are not met, enforcement action could be taken.

At DNB, we followed the ECB’s example and published a similar guide for the insurers, pension funds and other non-bank financial institutions that we supervise. Because we are committed to including climate and environmental risk management in our standard supervision. We also regularly try to paint a more macroprudential picture by doing stress tests and scenario analyses, which we publish about in our financial stability review or in occasional studies.Finally, we use our influence in various international forums to advance the development of standards and supervisory instruments for the identification and assessment of sustainability risks. These forums include the Basel Committee for Banking Supervision, the European Banking Authority, the European Insurance and Occupational Pensions Authority and the Financial Stability Board.

So at a minimum, we expect the financial sector to manage its nature-related risks appropriately. And you can expect us to provide clear guidelines and standards to adhere to.

But I believe that our mandate stretches beyond just ensuring sound risk management. DNB is also an economic advisor. We believe that sustainability is a topic that requires a fact-based, long-term and integrated perspective. This means that we clearly set out the trade-offs between climate, nature and other sustainability considerations, such as social risks and opportunities, in our analysis of policy options. By painting a long-term picture that shows more than just a single electoral cycle.

We accumulate and analyse data, cooperating internationally through the European Central Bank or the Financial Stability Board where possible. And based on our data analyses, we advise our governments and policymakers. After all, they are the ones in the driver’s seat – they have the political power to shape our society.

Similarly, the NGFS provides perspectives on certain topics to enhance sustainable finance solutions. A forthcoming NGFS publication on blended finance illustrates how the risk-return relationship of investment projects can be improved, thereby unlocking private capital that can help bridge the existing climate and nature finance gap.

DNB also keeps sustainability on the agenda in the financial ecosystem by hosting the secretariat of the Dutch Sustainable Finance Platform. Through this platform, the Dutch financial sector regularly meets with DNB, the financial markets authority, ministries and think tanks to discuss matters of shared interest, with the goal of supporting and enhancing the Netherlands’ sustainability efforts.

And of course, we try to practise what we preach in how we operate as an organisation. For instance when it comes to our own investments. In 2019, DNB became the first central bank to sign the Principles for Responsible Investment. At the moment, we are also conducting a pilot to explore how the TNFD framework could apply to DNB’s reserves. And in renovating our headquarters in the centre of Amsterdam, we made as many sustainable choices as possible, for example by making the old concrete carbon neutral by injecting it with CO2, and by making room for plenty of greenery in and around the building.

As a supervisor, it is not up to us to tell you who you should or should not lend to. But I believe that there is a lot of willingness among private financial institutions to contribute to a sustainable future. The sustainability transition needs to be funded, and the financial sector has an important part to play there. It can help us achieve carbon-neutral societies that exist in harmony with nature. Investing or lending to create sustainable impact is the wave of the future.

I understand that stepping away from the traditional risk-returnframework may be scary. And that it may feel like you are not delivering on your promise to maximise financial value for shareholders. But more and more shareholders – and clients – are realising the accelerating importance of sustainability. As a Dutch pension fund says on its website: “What’s the use of a good pension if the world around you has become unliveable?” And could we not argue that it is actually a long-term value optimisation decision to include sustainable impact in investment decisions to make your business model future proof? And isn’t it possible that impact-driven financing will actually help you manage your sustainability-related risks?

Sure, it will require some work on your part. To give a few examples: first of all, your operational primary processes, like investment processes and customer acceptance, will need to be tailored towards impact investments. Second, you will need to attract the right people, and the KPIs that you base your reward decisions on will need to reflect your commitment to value impact. And third, you need to become more transparent about what you do and what you are aiming for: to move away from the current short-term focus towards a long-term vision centred around sustainability.

Of course, you cannot do this alone. You can expect policymakers, supervisors and regulators to support your transition towards a more impact oriented mindset – while also bearing in mind your prudent risk management. Together paving the way for a smooth, predictable transition with clearly defined roles and expectations for everyone involved.

But I also urge you not to wait for everything to be perfect, or for all the necessary data to be available. Because if we wait too long, we might be too late.    

That is what you – what we – can do. We can be in the team that drives the transition towards sustainable societies and a sustainable future.    

So that when our children and grandchildren ask us what we did to save the planet, we can say that we stopped yelling at our forests, and started listening to them.

Thank you very much for your attention.

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