The finance sector underpins economic activity but also indirectly funds environmental degradation. In this article Sophie Schlachter, Sustainability Advisor, looks at the sector’s key impacts and dependencies on nature, and what actions organisations should take to mitigate nature-related risks.
- Nature loss poses growing systemic risk to financial institutions
- Businesses rely on ecosystems for resources, regulation and cultural value
- Action is needed now across three fronts: prepare, implement and support
- How Zooss uses data analytics to help financial institutions make sense of nature
The finance sector – enabler of growth and risk
The financial sector is a powerful enabler of global economic activity. Yet in the midst of a planetary health crisis, what else is it enabling?
Financial institutions have historically focused on risk and return — but failing to reckon with the negative impacts of economic activity on nature means we risk degrading the environmental foundation on which all global economic activity depends.
Nature is not just a backdrop to commerce – it is a critical asset class in itself – and financial institutions are facing an increasing burden to ensure capital flows away from nature-negative activities and toward those that regenerate and protect our natural systems.
Understanding the finance sector’s impacts and dependencies on nature
Impacts
Financial activity funds the following drivers of nature loss:
- Land and sea use change: driven by deforestation, urbanisation, or infrastructure projects.
- Over-exploitation of natural resources: extracting more than ecosystems can replenish, endangering long-term productivity.
- Pollution: from industrial waste, plastics, or chemical runoff — releasing substances into the environment which are toxic degrades land and waterways.
- Climate change: the combustion of fossil fuels, deforestation, degradation of wetlands and peatlands or the generation of waste are accelerating the modification of the earth’s climate through the release of greenhouse gases.
- Invasive species: introduced through globalised trade, disrupting local ecosystems.
Each investment carries a footprint — and, ultimately, the financial sector underwrites these risks.
Dependencies
Most economic activity is dependent, in some way, on nature. The level of dependency of a firm’s investment or lending portfolio on ecosystems services varies from company to company, however portfolio companies generally rely on nature for:
- Natural resource provisioning: agricultural products, wild-harvested products, freshwater, fossil fuels, metals or minerals.
- Environmental regulation: ecosystems buffer against natural disasters and support clean air, water, and healthy soils. Mangroves, for example, mitigate the risk of flood damage to properties in low-lying coastal areas.
- Cultural and social value: nature underpins tourism, recreation, and mental wellbeing.
Ignoring these dependencies is not just environmentally negligent — it’s economically shortsighted.
What should financial institutions do?
The UN Environment Program Finance Initiative and partners outline three key action areas in their Roadmap: Aligning financial flows with the Kunming-Montreal Global Biodiversity Framework.
1 Prepare
- Build internal capacity: Invest in training and tools to help teams understand and act on nature-related risks.
- Develop nature-positive strategies: Create policies and transition plans define and plan exactly how your organisation will contribute to a nature-positive future.
2 Implement
- Embed nature in risk management systems; regularly assess the nature footprint of your institutions financial relationships and integrate this information into risk assessment.
- Develop robust nature-related reporting systems; using frameworks like the TNFD, convey information about nature-related impacts, dependencies, risks and opportunities.
3 Support
- Engage with high nature-impact and high nature-risk portfolio companies: Set clear expectations for biodiversity stewardship and nature-positive business models.
How Zooss Consulting can help
Mapping nature-related impacts and dependencies across a complex investment portfolio is no easy task — but it’s essential for future-fit finance.
At Zooss Consulting, we specialise in Sustainable Business Planning. Using data analytics, we help financial institutions:
- Connect the dots between biodiversity, strategy, and capital allocation.
- Make sense of complex environmental data at the enterprise level.
- Model risk and opportunity in a rapidly changing regulatory and ecological context.
We call our approach Sustainable Business Planning – and it has the power to deliver better outcomes for organisations, people, and our planet.
Find out more
- Sustainable Business Planning – Our Solutions
- Getting data integration right: Best practices for building robust, scalable connections
- Moving beyond the “take, make and waste” model of production and consumption – and towards a Circular Economy
- Ready to start planning sustainably? Contact us.
About the author – Sophie Schlachter, Sustainability Advisor
Sophie holds a Master of Sustainability from the University of Sydney and has worked across regenerative agriculture and waste management sectors, including for OzHarvest and the Taronga Zoo Conservation Society. Sophie is experienced in business and sustainability analytics, and is passionate about enabling sustainable business that balances profit with positive environmental and social outcomes.
Better Planning. Better Planet.