On 18 June 2020, the Dutch Central Bank (De Nederlandsche Bank, DNB) issued a press release on financial risks resulting from the loss of biodiversity. DNB notes that Dutch financial institutions have hundreds of billions of euros in outstanding loans on which they may be exposed to risks as a result of loss of biodiversity. DNB, together with the Netherlands Environmental Assessment Agency (Planbureau voor de Leefomgeving, PBL), have concluded in a report that it is important that the financial sector maps the risks resulting from a loss of biodiversity. DNB and PBL carried out a joint study titled “Biodiversity and the financial sector: a cross-fertilization?”.
DNB and PBL have identified a number of risks:
- A loss of biodiversity threatens the availability of ecosystem services. Financial institutions that finance economic activities that depend on those ecosystem services are exposed to the physical risks of biodiversity loss. An example is pollination of food crops: when bees disappear, problems can arise in agriculture. Dutch banks, insurers and pension funds worldwide have EUR 510 billion in loans outstanding to companies with a high or very high dependence on one or more ecosystem services.
- Risks could arise when financial institutions providing financing to companies that have a major negative impact on biodiversity. Worldwide, the Dutch financial sector has EUR 97 billion outstanding in financing with companies that are involved in environmental controversies. Negative publicity that can be directly traced to such companies can lead to reputational damage for both the companies and the financial institutions financing those companies.
- Risks could arise from changing government policies or changes in consumer preferences aiming to reduce damage to biodiversity. For example, the transition to less nitrogen-intensive business models could lead to transition risks for the EUR 81 billion in loans that the three Dutch major banks have extended to Dutch sectors with nitrogen-emitting activities.
DNB notes that seeing that climate change is one of the major causes of biodiversity loss, and because different forms of nature management affect climate change, it is important that financial institutions consider climate-related and biodiversity risks together in their risk management.
On 19 June 2020, DNB will host a webinar to discuss the report, together with the team responsible for the research. You can register here.