Integratingclimate and nature
The rationale forfinancial institutions

.
Integrating climate and nature:
The rationale for financial institutions

The University of Cambridge Institute for Sustainability
Leadership
The University of Cambridge Institute for Sustainability Leadership (CISL) is a globally
influential Institute developing leadership and solutions for a sustainable economy. We
believe the economy can be ‘rewired’, through focused collaboration between business,government and finance institutions, to deliver positive outcomes for people andenvironment. For over three decades we have built the leadership capacity and capabilities
of individuals and organisations, and created industry-leading collaborations, to catalysechange and accelerate the path to a sustainable economy. Our interdisciplinary researchengagement builds the evidence base for practical action.

The Centre for Sustainable FinanceThrough a unique combination of deep industry collaboration, high-calibre researchand exceptional education programmes, the Centre for Sustainable Finance helps
financial institutions to play a leading role in building a more sustainable economy.
This is achieved by convening groups of leading firms across banking, insurance andinvestment, to develop tools that address industry barriers and knowledge gaps,
setting ambitious examples of best practice for wider finance industry and equipping
financial institutions to understand and improve their sustainability impact.

The Investment Leaders Group (ILG) is a global network of pension funds, insurers and asset
managers, with over £14 trillion under management and advice. The ILG’s vision is aninvestment chain in which economic, social and environmental sustainability are delivered
as an outcome of the investment process as investors go about generating robust, longterm returns. It is convened by CISL.

The Banking Environment Initiative (BEI) is a group of global banks committed to pioneering
actionable pathways towards a sustainable economy. The BEI co-produces horizon scanningapplied research, develops leadership tools and convenes academic and industry
collaborations. It is a member-led, not-for-profit group, formed in 2010 and convened by
CISL alongside our investor and insurer groups.

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Integrating climate and nature:
The rationale for financial institutions

Authors
The authors of this report are Paula Barreto Barsted, Annabel Ross, Dr Nina Seega and Grant Rudgleyat the CISL Centre for Sustainable Finance. They were supported at CISL by Lucy Auden, Emily
Hamm, Dr Gemma Cranston and Thomas Vergunst, as well as the financial institution members of
the BEI and ILG, whose contributions were invaluable.

Citing this report
University of Cambridge Institute for Sustainability Leadership (CISL). (2022). Integrating climate
and nature: the rationale for financial institutions. Cambridge, UK: University of Cambridge Institutefor Sustainability Leadership.
Copyright © 2022 University of Cambridge Institute for Sustainability Leadership (CISL). Some rights
reserved. The material featured in this publication is licensed under the Creative Commons
Attribution-NonCommercial-ShareAlike License.

Contents
Executive Summary ............................................................................................................................... 3
Climate change and nature loss ............................................................................................................ 4
Interconnections between climate and nature ................................................................ 5
The need for integrated decision-making ............................................................................................. 7(i)Materiality of nature-related risks, over and above climate-related financial risks ......... 9(ii)
Unintended consequences for nature when actions focus exclusively on climate
mitigation and adaptation ........................................................................................................... 10(iii)
Dangers of disregarding compounding effects from interactions between climatechange and nature loss................................................................................................................ 11(iv)

Potential synergies and cost efficiencies when addressing climate change and nature 12(v)

Potential risks to the stability of the broader financial sector ........................................ 13

Conclusion and next steps ................................................................................................................... 14
Appendix 1: The current landscape ..................................................................................................... 152

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Integrating climate and nature:
The rationale for financial institutions

Executive Summary
Climate change and nature loss are deeply interconnected. Temperature rises, changes inprecipitation patterns and extreme weather events have a range of impacts on nature. Furthermore,
the decline of nature affects weather patterns and the resilience of ecosystems in the face of
impacts from climate change, as well as their ability to capture and store carbon and to provide
benefits to society (Kuhlow et al, 2021; Pörtner et al, 2021).
Despite their deep interconnections, climate change and nature have historically been discussed
separately: the United Nations Framework Convention on Climate Change (UNFCCC) focused on
global warming, and broader nature loss themes covered by Conventions on Biological Diversity(CBD) and to Combat Desertification (UNCCD).
In the financial sector, the risks and financial implications of climate change and the degradation ofnature are also largely tackled as independent issues. Institutions initially focused on addressing thechallenges of managing climate-related risks and the transition to a net-zero economy, given theincreasing prominence of this agenda since the Taskforce for Climate-related Financial Disclosure(TCFD) published its recommendations in 2017.
Today, financial institutions are engaging and supporting clients with their emissions reduction plans.
This engagement must also address nature loss. If it does not, a number of risks and opportunities
will be missed, including the:
i.
ii.
iii.
iv.
v.

materiality of nature-related risks, over and above climate-related financial risks
unintended consequences for nature when actions focus exclusively on climate mitigation
and adaptation
compounding effects from interactions between climate change and nature loss
potential synergies and cost efficiencies when addressing climate change and nature andmacroprudential risks to the stability of the financial sector.

By detailing this rationale for integrating climate and nature, this paper aims to:••

inform the design of a corporate engagement guide for use by financial institutions whichenables them, their clients and their investees to achieve net zero whilst protecting andrestoring nature andincorporate nature-related financial risks into existing climate agendas, building on thepioneering research collaboration between CISL and its partners, including the BEI, the ILG,
ClimateWise, Cambridge University academics and the Taskforce on Nature-related
Financial Disclosures (TNFD).

Targets for nature protection and restoration will be finalised by the end of 2022, COP27 is due tofocus more on physical adaptation and therefore nature-based resilience to extreme weather, andregulators in NGFS are broadening their environmental risks and financial stability agenda to include
nature. Plainly, the time to get to grips with the interconnection between climate and nature has
arrived.

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Integrating climate and nature:
The rationale for financial institutions

Climate change and nature loss
Dual challenges
The seriousness and urgency of our current environmental crisis requires a joint “climate–naturetransition”, namely a “transition to an economy that is not only consistent with net-zero carbon
emissions but also has net-positive impacts on nature” (Finance 4 Biodiversity (F4B), 2021, p.7).
Human activity has “significantly altered” 75 percent of the land surface and about 66 percent of themarine environment (Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem
Services (IPBES), 2019, p. 11). The rate of the global decline in nature is unprecedented in humanhistory, and the vast deterioration of the Earth’s ecosystems – oceans, rivers and forests – is eroding
the biological diversity (biodiversity) that underpins our society and economies (F4B Pledge, 2022c;
IPBES, 2019).
Safe limits within which humanity can exist are being crossed across multiple Earth systems,
including biosphere integrity, land-system change and climate change (Figure 1). Mean global
temperatures have risen by 1.2°C since the Industrial Revolution, while the concentration of carbon
dioxide in the atmosphere is at its highest level in at least two million years (Intergovernmental Panelon Climate Change (IPCC), 2021).
Figure 1 – Planetary boundaries1 (SRC, 2022)

Genetic diversity: Extinction rate =Extinction/ Million Species Years(E/MSY)
Functional diversity: Biodiversity
Intactness Index (BII)

1

Credit: Azote for Stockholm Resilience Centre, based on analysis in Persson et al (2022) and Steffen et al (2015)4

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Integrating climate and nature:
The rationale for financial institutions

With multiple causes and multiple Earth systems under threat, the only logical response is a joinedup one. The stability and strengthening of our society and economies relies on addressing the natureand climate change crises in conjunction.
Given their universal reach, financial institutions are particularly well-positioned to:a) leverage their global network of clients – which span governments, large corporates,
small and medium sized enterprises (SMES) and retail customers – to raise awareness,collaborate, engage and advocate for the importance of addressing climate and nature as
a combined challenge andb) mobilise capital to enable businesses to transition to more sustainable business models,reallocating financial flows away from organisations that are damaging nature andcontributing to climate change.
These two core activities fall under the concept of ‘engagement’ for the purposes of this paper andthe ongoing CISL workstream.
In this paper, we are not able to comprehensively investigate the social dynamics associated with thetransition to net-zero and nature-positive economies. CISL is seeking to do this in parallel researchthat we hope to integrate in the near future.
Box 1: Nature – Definition
For the purpose of this paper, nature is defined in line with the TNFD definition, as “the natural world, with an emphasis on thediversity of living organisms (including people) and their interactions among themselves and with their environment” (Diaz et al,2015). It can be understood as a construct of four realms – Land, Oceans, Freshwater and Atmosphere – which underpins andinteracts with society (TNFD, 2022b).
Biodiversity, in its turn, consists of “the variability among living organisms from all sources, including, inter alia, terrestrial, marineand other aquatic ecosystems, and the ecological complexes of which they are part; this includes diversity within species, between
species and of ecosystems” (CBD, 1992).

Interconnections between climate and nature
Despite deep interconnections, climate change and nature loss have historically been discussed
separately, with the United Nations Framework Convention on Climate Change (UNFCCC) focused on
global warming and broader nature loss covered by Conventions on Biological Diversity (CBD) and to
Combat Desertification (UNCCD).
The IPCC and IPBES recently published a joint report highlighting the interconnections between the
two agendas and the importance of addressing them in an integrated manner (Dunne, 2022). This is
likely to have implications for expectations of business, finance and governments. As climate-related
assessments and associated disclosures become more granular and accurate, we anticipate broadernature-related processes will do the same.
While land use change remains the main driver of nature loss, climate change is assuming an
increasingly relevant role (Dunne, 2022). Higher concentrations of greenhouse gases lead toincreases in temperatures, more frequent extreme weather events and changes in precipitation

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Integrating climate and nature:
The rationale for financial institutions

patterns, with adverse consequences for biodiversity (Kuhlow et al, 2021; Pörtner et al, 2021). In themarine environment, climate change is causing intensified heatwaves, oxygen depletion and ocean
acidification, which affect ecosystem functions and the livelihoods of coastal communities. As aresult of ongoing climate change, many species are modifying their geographic ranges, migration
patterns and how they interact with other species (IPCC, 2018; The Royal Society, 2021).
Similarly, nature loss is a key driver of climate change. Worldwide, the loss of forests and coastal
ecosystems contributes to around 4.8 and 1 billion tonnes of CO2 emissions per year, respectively,
while 30 percent of global annual greenhouse gas emissions originate from food systems (Carbone,2021; Crippa et al, 2021). Modifications in biodiversity disturb the carbon, nitrogen and water cycles,with consequences for the climate system (Pörtner et al, 2021). Vegetation is also critical for local
cloud formation and, on a larger scale, may impact atmospheric circulation and influence regional, oreven global, weather patterns (The Royal Society, 2021). Finally, nature intactness is also critical forthe resilience of ecosystems to varying climates (Pörtner et al, 2021).
The materiality of nature loss on financial portfolios has also been established, with a recent use casefinding significant risk of asset value deterioration for companies in agricultural value chains, whenthose farming on degrading land, as opposed to healthy soils, are exposed to an extreme weather
event (CISL and Robeco, 2022). With extreme weather events becoming more common, the findingsof this scenario have important implications for the rationale for integrating both nature and climate
into financial decision-making processes.
These complex interactions between climate and nature can generate feedback loops, resulting in“more pronounced and less predictable outcomes” (Pörtner et al, 2021, p. 15). This could alter theaccuracy of financial models based on historical data, with implications for probability of default
estimations. For example, recent research quantified the transmission of the financial risk of landdegradation to the agricultural value chain, concluding that smaller packaged food companies thatsource from areas of degrading land would experience a negative impact on valuation of as high as
45 percent (CISL and Robeco, 2022). The University of Cambridge’s Bennett Institute has shown thatthe loss of biodiversity can negatively impact sovereign credit ratings, making the likelihood ofcountry-level defaults more likely in future (Agarwala et al, 2022).

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Integrating climate and nature:
The rationale for financial institutions

The need to consider climate and nature
together in financial decision-making
Context
In the financial sector, climate and nature are being tackled separately and unequally. Institutions
have primarily focused on addressing the challenges of managing climate-related risks and thetransition to a net-zero economy, given the increasing prominence of this agenda and since thepublication of the recommendations of the TCFD in 2017. More recently, there have been growing
calls for a comprehensive approach to environmental impacts and dependencies which would
integrate climate change and other environmental-related issues, such as nature loss (NGFS-INSPIRE,
2022).
We recognise that nature loss and climate change encompass complex processes and issues. For
nature loss, in particular, no widely agreed upon framework yet exists to assess and decide on how
different aspects of nature loss should be prioritised as issues to address; nor are there advanced
methods to measure the effects of nature and biodiversity loss. In view of this, the full integration ofnature loss with climate change will happen over the coming years, rather than overnight.
However, elements of integrated climate and nature risk assessment can begin already, starting withprioritisation based on available data, methods or materiality (CISL, 2022a). The development ofthese frameworks and data sets will need the active participation of a wide range of stakeholders
and is a necessary bedrock for financial institutions to meaningfully engage with corporate clientsand investee companies.
The key effort in which to participate is the TNFD, an international cross-sector initiative, which is
working to develop and deliver a risk management and disclosure framework for organisations toreport and act on evolving nature-related risks and opportunities. Their principles include a climatenature nexus angle, suggesting “an integrated approach to climate- and nature-related risks, scaling
up finance for nature-based solutions” (TNFD, nd). The TNFD framework is modelled on that of the
TCFD, with the ambition that organisations will achieve integrated climate–nature disclosures. The
climate–nature nexus has also been the focus of research by the F4B Initiative (eg, F4B, 2021, 2022)
and the Finance Sector Expert Group for Race to Zero and Race to Resilience (FSEG) (Kuhlow et al,2021).
In parallel, changes are also happening in the regulatory sphere, encouraged by the creation of a
joint NGFS-INSPIRE Study Group on Biodiversity and Financial Stability in April 2021, to assess theimplications of biodiversity loss for central banks and supervisory authorities. The study group’s firstrecommendation to central banks and financial supervisors highlights the importance of adopting,within green finance and risk management strategies, an integrated approach that considers thelinks between biodiversity and climate change (NGFS-INSPIRE, 2022).

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Integrating climate and nature:
The rationale for financial institutions

Why integrate climate and nature considerations?
A joint integration of nature and climate consideration into mainstream finance is justified by the:i.

Materiality of nature-related risks, over and above climate-related financial riskseg, financial risks for the pharmaceutical industry, for which new drug development isthreatened by deforestationii.

Unintended consequences for nature when actions focus exclusively on climate
mitigation and adaptationeg, incorrect assumptions about the feasible scale of bioenergy with carbon capture andstorage (BECCS) and afforestation, with implications for valuations of companies incarbon-intensive sectors

iii.

Dangers of disregarding compounding effects from interactions between climatechange and nature losseg, increased risks of flooding due to combined impacts from climate change and landdegradationiv.

Potential synergies and cost efficiencies when addressing climate change and natureeg, financial opportunities when designing effective nature-based solutions andsynergies when building out and updating risk models, creating incentive schemes andengaging with corporates, thereby also avoiding the risk of building isolated processes,
strategies and funding solutions andv.

Potential risks to the stability of the broader financial sector
eg, common dependencies on nature creating large losses in different sectors, causing
risks at the portfolio level and making it more challenging to diversify risk.

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Integrating climate and nature:
The rationale for financial institutions

Figure 2 – The rationale for an integrated climate–nature approach(i) Materiality of nature-related risks, over and above climate-related financial risks
Climate change is only one driver of ecosystem service2 decline (Figure 3). If we do not movebeyond climate risk, there will continue to be unmeasured and unmanaged nature-related risks
in financial portfolios. (NGFS-INSPIRE, 2022, p. 3).
Taking a climate-only risk lens also means that some sectors would not be prioritised, although
they are strongly impacted by nature loss. For example, drug development is threatened bydeforestation, with an estimated 2,000 plants with anti-cancer properties residing in tropicalrainforests (Global Canopy and Vivid Economics, 2020).

2 Environmental assets generate “flows of benefits” to society and the economy. These so-called “ecosystem services” include (i) provisioning services,such as the provision of food, fresh water, genetic resources, medicinal resources, energy and raw materials; (ii) maintenance and regulating services,that is, the regulation of climate, the purification of water and air, pollination and biological pest and disease control; (iii) cultural services, including
contributions to physical and mental health, as well as enabling recreational and spiritual experiences; and (iv) supporting services, such as nutrient
cycling and soil formation, which underpin all the other ecosystem services (NGFS-INSPIRE, 2022; TNFD, 2022b).

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Integrating climate and nature:
The rationale for financial institutions

In addition, as governments, regulators and citizens begin to demand nature-positive3 activities,businesses that have material dependencies on nature and/or continue to negatively impact
nature will see nature-related transition and liability risks materialise (Figure 3). Suchunsustainable practices include those related to the use of freshwater, chemicals or land. An
example of unsustainable chemical use has been explored in a CISL use case looking at thetransition risk that materialises as a result of EU policies seeking to create a sustainable andresilient food system by reducing fertiliser use by at least 20 percent. This could put up to 46
percent of fertiliser company equity value at risk (CISL et al, 2022). Transition risks could also
impact the forest, land and agriculture sector: a recent review attested that of nearly 150
companies already committed to net zero, just nine are “making strong progress indeforestation” (Climate Champions, 2022). Despite the relevance of these risks for forwardlooking analysis, they are not considered when chosen scenarios are exclusively focused on in
the assessment of climate-related financial risks (F4B, 2021).
Figure 3. Framework for identifying nature-related financial risks (CISL, 2021a)

3 A nature-positive economy is one in which “businesses, governments and others take action at scale to minimise and remove the drivers andpressures fuelling the degradation of nature, to actively improve the state of nature itself and to boost nature’s contribution to society” (CISL, 2022b).

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Integrating climate and nature:
The rationale for financial institutions(ii) Unintended consequences for nature when actions focus exclusively on climate
mitigation and adaptation
Investment and lending decisions made with only climate risk in mind may unintentionally havedamaging consequences, with climate mitigation activities potentially proving harmful to nature.
To demonstrate the potential unintended consequences caused by a pure focus on net-zerotargets, we can consider BECCS (Pörtner et al, 2021). BECCS consists of growing crops, burningor converting them in power plants, industrial facilities or biorefineries and capturing theresulting CO2, which is then injected into naturally occurring porous rock formations (Dunne,2022; Fajardy et al, 2019). As a strategy for carbon removal, BECCS is commonly present inclimate scenarios that limit global temperature rise to 1.5°C or 2.0°C above pre-industrial levels
to prevent temperatures from exceeding the desired target or to make them decline towards
the targeted level after an “overshoot” (F4B, 2021; PRI, 2020, p. 28). However, the scaleenvisaged by most models would require large amounts of land that is already providing food orother ecosystem services (The Royal Society, 2021). A joint climate–nature assessment would
result in more realistic assumptions about the large-scale roll-out of technologies, such as
BECCS, in turn creating pragmatic pathways for emissions reductions that will accelerate change
in carbon-intensive sectors and readjust valuations within those sectors (F4B, 2021; Keyßer andLenzen, 2021; Kuhlow et al, 2021; NGFS-INSPIRE, 2022; Vivid Economics, 2020).
Tree planting pledges are another example of how thinking only about carbon can lead toperverse solutions. Afforestation as a climate change solution/offsetting tool relies on rapid tree
growth and often involves large-scale, fast-growing, monoculture plantations. However,monocultures do not offer biodiversity, nor address the nature degradation/restoration
challenge; therefore, the ecosystem services, that is, the benefits to society, are strictly limited.
Monoculture plantations are less resilient to disease, pests and changes in climate, affecting
carbon storage in the long run. In addition, afforestation with non-native species might bring in
new pests and diseases or pose additional water security risks in semi-arid regions. Financial
incentives for planting trees at large scale might put additional pressure on native forests andeventually compromise local land rights (Seddon et al, 2020).
Understanding these unintended consequences is essential for properly assessing andunderstanding risks, uncertainties and opportunities, as well as for reputation management andeffective engagement with corporates to ensure credible science-based targets and transition
plans (Vivid Economics, 2020).

(iii) Dangers of disregarding compounding effects from interactions between climate change
and nature loss
Physical impacts from climate change and nature loss can interact, amplifying the risks tobusinesses and financial portfolios. Furthermore, since feedbacks between climate change andnature loss might occur, the separate analysis of each of these topics will underestimate
potential financial risks (NGFS-INSPIRE, 2022). For example, due to changes in temperature andrainfall, natural landscapes are facing increasing risks of fire or drought, which are exacerbated11.
Integrating climate and nature:
The rationale for financial institutions

when ecosystems are degraded (Dunne, 2022). A recent simulation showed that water stressscenarios could significantly impact the credit risk of heavy industry companies in East Asia, witha significant share of companies in the sample moving from investment grade to speculative
grade (CISL and HSBC, 2022). Mutual reinforcement can also occur for flooding risks, due tocombined impacts from climate change and land degradation: climate change makes extreme
weather events more frequent, while deforestation removes the capability of forests to prevent
run-offs and damage from flooding (F4B, 2022).

(iv) Potential synergies and cost efficiencies when addressing climate change and nature
A joint climate–nature transition “to an economy that is not only consistent with net-zerocarbon emissions but also has net-positive impacts on nature” (F4B, 2021, p. 7) offers financial
institutions opportunities to mobilise more capital towards sustainable business practices. For
example, ‘well-designed’ Nature-based Solutions (NbS) have the potential to support bothclimate mitigation and adaptation challenges, while enabling nature restoration (The Royal
Society, 2021; Seddon et al, 2020). NbS are “actions to protect, conserve, restore, sustainably
use and manage natural or modified terrestrial, freshwater, coastal and marine ecosystems,
which address social, economic and environmental challenges effectively and adaptively, while
simultaneously providing human well-being, ecosystem services and resilience and biodiversity
benefits” (UNEP, 2022, p. 2). If properly implemented, they can contribute to:-reducing emissions by preventing deforestation and land degradation
implementing sustainable practices in agriculture
restoring forests and other biomes
improving forest management andenhancing soil carbon.

NbS can also be a cost-effective way of increasing resilience in the face of climate change. For
instance, green infrastructure, such as mangroves and salt marshes, can be up to five times
cheaper than grey infrastructure (Dasgupta, 2021). This underscores the potential synergies ofaddressing climate change and nature loss concurrently to abate financially material risk whilst
realising financially material opportunities and, in doing so, bridging the US$150 billion perannum financing gap required to protect and restore nature (Deutz et al, 2020).
Done in a scientifically robust manner, mobilising finance to invest in nature and businessresilience can generate financial opportunities as well as positive impact (Kuhlow et al, 2021).
This large increase in investments in nature can, and must, support the widespread and urgent
decarbonisation of our economies, particularly as the biosphere has limited capacity to holdcarbon compared to current and potential fossil fuel emissions (Seddon et al, 2021; The Royal
Society, 2021). Financial institutions must take an integrated approach to assess finance’s
impact on ecosystem health and climate stability so as not to reduce the ambition of otherclimate mitigation actions.
There are also resource efficiencies to be gained by taking an integrated approach. At theorganisational level, an integrated climate–nature approach could generate synergies whenbuilding out and updating risk models, designing credible net zero transition plans and12.
Integrating climate and nature:
The rationale for financial institutions

associated incentive schemes and engaging with corporates. At a time when financial decisionmakers are pressed by regulatory, commercial and reputational drivers to deliver net-zerotargets, upskilling existing teams to incorporate nature-related risk considerations will be vital toensure speed and efficiency in achieving targets. This joint approach would prevent additional
delays in developing the necessary products, services and engagement strategies to actively
support real economy actors in relation to transitioning to more sustainable business activities.

(v) Potential risks to the stability of the broader financial sector
Managing nature-related risks cannot “wait” until climate-related risks are addressed (Global
Canopy and Vivid Economics, 2020, p. 3). In a recent report, the NGFS-INSPIRE (2022, p. 2)
underscored that “there is sufficient evidence to suggest that the problem could be systemic(…)”. The document identified that 45 central banks and supervisors are already implementing
measures to address nature-related risks but recommended further action, within theirmandates, to properly address the financial risks from nature loss.
Indeed, nature-related risks are spread widely across the economy, both vertically andhorizontally, given that different companies from several sectors have common dependencies
and impacts on nature and ecosystem services (Global Canopy and Vivid Economics, 2020). For
example, a recent mapping exercise on the exposure of the MSCI All World Index to ecosystemservices revealed the dependency of companies across a range of sectors on water security (CISLand Aon, 2022). Another recent analysis by Banque de France showed that 42 percent of thetotal value of securities held by French financial institutions were issued by companies that arehighly or very highly dependent on at least one ecosystem service (NGFS-INSPIRE, 2022).
Changes in natural processes can also happen in non-linear ways, with the possibility of crossing
irreversible tipping points (NGFS-INSPIRE, 2022) and, in turn, endangering wider financial
stability.

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Integrating climate and nature:
The rationale for financial institutions

Conclusion and next steps
Previous CISL research identified that, within leading financial
institutions, the journey to net zero starts with a C-suite strategic
approach and an ‘active mindset’, underpinned by a clear
recognition that the transition to a sustainable economy isinevitable. Having set a strategic vision, financial institutions begin
to adjust their business and operating model, empowering
employees and evolving the risk function. To adequately address
the multiple planetary health crises we face, the evolution of the
Figure 4 – Adjusted business andrisk management function needs to consider climate and nature
operating model, Bank 2030 (CISL,
jointly, as do the product offering and customer service model
2020a)(Figure 4). By doing so, the basis on which financial firms engage
with clients and investee companies will evolve beyond the current net-zero transition agenda.
The financial sector cannot solve the challenge of integrating the nature and climate agendas alone.
Policymakers, regulators, clients and investee companies need to make considerable changes toincorporate nature into policy, business activities and disclosure that involve climate so that capitalcan be mobilised to support the protection and restoration of nature. Financial institutions canadvocate for clearer policies and regulatory guidelines, similar to the UK’s Prudential Regulatory
Authority’s Supervisory Statement on Climate Financial Risks in 2019, which drove an acceleratedchange in practice to climate risk management within firms.
With this rationale for integrating climate and nature considerations into financial decision-making,
CISL will work with financial institutions, academics and other collaborative initiatives to enable thefinance sector to engage with clients and investee companies on both nature and climate. This focus
on corporate engagement would aim to:
1. host roundtables to identify the leadership in corporate engagement in the domains of the netzero transition and nature loss avoidance, as well as raise the ambition level by sketching what
will be required to successfully deliver on TCFD, TNFD and commitments to restore nature andmitigate climate change concurrently
2. build capacity amongst members of the BEI and ILG, embedding the rationale for a joint
climate–nature approach and the concepts of planetary system health needed to begin
constructive corporate engagement and3. collaboratively develop a guide on corporate engagement with financial institutions that
accounts for synergies and trade-offs between climate change and nature, mobilising capital in
support of the UN Sustainable Development Goals more broadly.4
Targets for nature protection and restoration will be finalised by the end of 2022, COP27 is due tofocus more on physical adaptation and regulators in NGFS are broadening their environmental risks
agenda to include nature. Plainly, the time to get to grips with the interconnection between natureand climate has arrived.
4 This consultation and collaboration will follow a similar structure to the Let’s Discuss Climate: Essential guide to bank-client engagement (CISL, 2021b),

presenting impactful questions that should be asked at each stage of corporate engagement and key tools for supporting this process.

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Integrating climate and nature:
The rationale for financial institutions

Appendix 1: The current landscapeIn the financial and corporate world, nature-related considerations have risen up the agenda, in linewith early-stage research by CISL and others (CISL, 2020c, 2021a; Global Canopy and Vivid
Economics, 2020) and with initiatives such as Natural Capital Finance Alliance, Natural Capital
Coalition, EU Finance@Biodiversity and Business for Nature. The increasing visibility of this topic is
made evident by a recent proliferation of tools and methodologies (Table 1).

Table 1 - Examples of tools, methodologies and standards
Aim

References

Provide commodity supply-chain dataeg Trase, SPOTT, Forest 500

Measure biodiversity footprints of financial portfolios

Guidance on existing tools available in
Hilton and Lee (2021) and Finance for
Biodiversity Pledge (2022a), including
Biodiversity Footprint Financial
Institutions (BFFI), Biodiversity Impact
Analytics powered by the Global
Biodiversity Score (BIA-GBS), Corporate
Biodiversity Footprint (CBF), Global
Biodiversity Score for Financial
Institutions (GBSFI) and Global Impact
Database (GID)

Set accounting standards

PBAF, 2022

Enable location-specific assessmentseg Global Forest Watch, ENCORE hotspot
database, Integrated Biodiversity
Assessment Tool (IBAT)

Compare corporate performance towards nature

World Benchmarking Alliance, 2022

Offer guidance for target-setting

SBTN, 2020; UNEP FI and UNEP-WCMC,
2021

Efforts are also underway to improve current nature-related data and analytics, as well as thedisclosure of nature-related risks and impacts, as exemplified by the Nature-related Data Catalyst
convened by the TNFD (TNFD, 2022b), the ongoing development of the TNFD Framework (TNFD,
2022a), the International Financial Reporting Foundations (IFRS) consultation process on
sustainability reporting (IFRS, 2022), the review of the GRI Standards for Biodiversity (GRI 304) andthe update of CDP questionnaires to better cover biodiversity issues. Moreover, guidance is alreadyavailable for corporate engagement on key issues, such as plastic packaging, water and biodiversity(eg PRI, 2018; PRI, 2021; VBDO, nd; F4BPledge, 2022b).

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Integrating climate and nature:
The rationale for financial institutions

However, compared to climate change, the integration of nature-related considerations is lessmature in financial decision-making (Kuhlow et al, 2021, NGFS-INSPIRE, 2022). Given the complexityand dynamism of this agenda, it is challenging for practitioners to absorb and operationalise thesedevelopments. In addition, despite the increasing recognition that climate and nature should bejointly addressed, there is still limited guidance on how financial actors could adopt an integrated
approach, including through corporate engagement.

References
Agarwala, M., Burke, M., Klusak, P., Kraemer, M., Volz, U. (2022). Nature loss and sovereign credit
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