Indebted to Nature

This joint study by De Nederlandsche Bank (DNB) and PBL Netherlands Environmental Assessment Agency finds that the Dutch financial sector is exposed to risks as a result of biodiversity loss.

Many economic activities depend on the availability of ecosystem services such as water treatment, animal pollination and soil fertility. The paper explains that the rapid degradation of these natural services presents physical, reputational and transitional risks to the banks, pension funds and insurers that finance life-destroying activities.

The report begins with an overview of biodiversity and the financial sector, outlining the provisioning, regulating, cultural and supporting ecological services provided by diverse species within natural systems. The rapid decline in core ecosystem services is detailed, and the mechanisms by which this decline affects the financial sector are outlined. The bulk of the report explores the physical, reputational and transitional risks of biodiversity loss to financial actors.

Focusing specifically on Dutch financial institutions, the study finds an exposure of €510 billion to companies with high or very high dependency on one or more ecosystem services – 36% of the portfolios examined. The decline in pollination services alone exposes the financial sector to €28 billion in potential losses. The involvement of Dutch financial institutions in environmental controversies is also examined, and the reputational and transition risks are assessed.

The report concludes with recommendations that financial institutions identify the physical, transitional and reputational risks resulting from the biodiversity loss and that they develop “consistent and broadly applied standards for measuring and reporting on biodiversity risks”.

This study is a follow-up to a report from DNB, which examined the environmental and social risks related to biodiversity loss, water stress, resource scarcity and human rights controversies.