Big banks CBA, NAB, Westpac, ANZ and Macquarie in push to disclose the impact of lending on nature – The Australian Financial Review

In the same way as climate-related performance is material to share price and asset valuations, that is exactly what is going to happen in the nature space, said Will Symons, the Asia-Pacific climate and sustainability leader at Deloitte, which last week issued a report titled Banking on Natural Capital.

The report will help financial institutions focus on quantifying the value of nature, both the hidden risks associated with nature loss and opportunities associated with its replenishment.

The World Economic Forum has estimated more than half of the worlds economic output, or $US44 trillion ($61.7 trillion), is moderately or highly dependent on nature. It is an issue melding into Australias consciousness given bushfires, floods and the degradation of coral reefs.

TNFD obligations will push banks towards being nature positive, requiring them to invest more into nature to offset the impact on biodiversity loss or land clearance from activities within their lending portfolios; the nature equivalent of scope 3 in the emissions space.

This is coming fast. Many organisations will have to start disclosing in a year and many organisations are really early wrapping heads around this, Mr Symons said.

Deloittes Banking on Natural Capital report points out that the destruction of natural ecosystems is a significant source of greenhouse gas emissions, and that nature plays an essential role in combatting climate change. It also shows that climate change and nature loss are linked and should be tackled concurrently.

We are moving from a state of understanding climate credit risk to actually doing something about it, and for many organisations, some decarbonising will be through nature-based solutions, which can provide a most cost-effective way of taking action now, Mr Symons said.

As well as de-risking existing investments and assets, the TNFD will also help banks create new green lending products and activate new markets, including a push towards trade credits attached to nature.

Commonwealth Bank of Australia, in its inaugural climate report issued last week, cited natural capital as a core focus area for next year.

There is increased interest from customers, regulators, government and investors on the banks approach to climate change, biodiversity and natural capital, the report said.

CBA joined the TNFD this year and said it had designed a high-level road map to guide our approach to natural capital.

In the coming year we aim to set our priorities related to natural capital and explore metrics to measure our progress, the bank said.

For banks, a key challenge is working out where loaned funds are being spent. This will be necessary to determine if customer activity is happening in areas where biodiversity may be impacted. However, many banks dont record the geolocation of lending activity.

Another issue is understanding the precise nature of the activity being conducted with money lent, which may require banks to ask more questions about the purpose of loans. For example, borrowing to buy tree felling machinery could point to land clearing, which may support an agricultural industry but be nature negative from a deforestation perspective.

Deloitte says banks need to begin mapping, measuring and monitoring risks, impacts and dependencies of lending with established risk assessment and disclosure frameworks. It suggests conducting nature-related stress tests of current and projected balance sheets, and integrating biodiversity into sustainable finance policies.

Opportunities will emerge in trading credit attached to protecting and improving the natural environment. Many of these markets, such as those for biodiversity credits in NSW, are fragmented. But Deloitte predicts a coherent, regional market will emerge based around natural capital assets. These could include co-benefits attached to carbon credits.

It suggests banks and other financial institutions collaborate on creating a nature-based equity exchange.

We are inviting the financial services industry to take a role designing and driving that marketplace, The scale of opportunity, and potentially the wave of risk for the sector, is too great to be handled on an institution-by-institution basis, said Guy Williams, Deloittes Asia-Pacific and global nature lead.

Deloitte acknowledges governments play a key role in catalysing and scaling private sector investment in natural capital. But pressure to adopt TNFD will not only come from consultants and regulators, but also financial sector investors.

Deloitte quotes Jessica McDougall, the director of BlackRock Investment Stewardship, in its report, who said careful management of natural capital would become a core component of a resilient, long-term corporate strategy for companies that rely on the benefits that nature provides.

She said investors were increasingly interested in contributing capital to companies that not only mitigate nature-related risks, but consider natural capital opportunities aligned with their strategy.

Mr Williams said recent conversations with European sovereign wealth funds suggest TNFD disclosure is going to move quickly.

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Big banks CBA, NAB, Westpac, ANZ and Macquarie in push to disclose the impact of lending on nature - The Australian Financial Review