Skip to main content

What role does the banking sector play in transitioning to a nature-positive economy?

An unfolding crisis

Nature is already degrading on an alarming rate, and the world will likely face a catastrophic future if this depletion persists.

According to a recent NatureServe report, 34% of plants and 40% of animals in the United States are at risk of extinction, while 41% of ecosystems are at risk of range-wide collapse.

Such loss of biodiversity and “natural capital”—the various natural resources and ecosystems that underpin our economy and society—could stunt future economic growth, disrupt supply chains, and affect the flow of essential goods and services.

What is natural capital and biodiversity?

In this blog I decouple nature capital and biodiversity and offer views on the role the banking sector plays. Natural capital describes the various natural resources and ecosystems that enable the flow of goods and services to the economy.

Ecosystem services are derived from natural capital and refer to the flows of benefits such as clean water, healthy soils, and other climate regulating services that are vital for societies and economies. 

Unlike financial capital, natural capital is not a fungible asset and, therefore, requires its inclusion in the decision-making process of each industry.

Biodiversity can be defined as the variety of all living things that exist within terrestrial, marine, and other aquatic ecosystems and their interactions with nature.

It is not only a measure of the state of nature but also is critical to the health and stability of natural capital, as it provides resilience to natural shocks, like floods and droughts, and supports fundamental processes such as the carbon, nitrogen, and water cycles.

What role does the banking sector play in moving to a nature-positive economy?

Mobilising finance for nature-positive outcomes can offer new business opportunities for banks.

The World Economic Forum (WEF) estimates that a nature-positive pathway could generate over US$10 trillion in new annual business value, possibly resulting in new financial markets and products to enable new capital flows.

As key players in the global financial system, banks are uniquely positioned to create nature-positive outcomes, boost economic growth, and contribute to economic stability:

1. Capital flows:

Banks will have a bigger role to play in plugging the global biodiversity funding gap than they do today;

Investments currently stand at > US$720 billion per year (Paulson Institute).  The current share of private sector funding is only about 14% as compared to 86% from the public sector (State of Finance for Nature 2021).

Financing nature-positive projects may also have the indirect effect of reducing their loss exposures. For instance, funding for conservation efforts in agriculture could also help minimize loan losses in that sector.

2. Nature-finance innovation:

Evolving customer demands and shifting stakeholder sentiments toward biodiversity loss can also create new financial markets for nature-related products in both developed and developing economies.

  • There is a growing market for securities and funds that focus on minimizing biodiversity loss - AXA’s impact investment fund is one such example that focuses on biodiversity protection.
  • Products such as green bonds, debt-for-nature swaps, blue bonds, and biodiversity credits can significantly expand the nature market and the reach of biodiversity-linked investments - Bank of America (BoA) for instance, is offering thematic and structured bonds focused on debt-for-nature provisions.
  • Similarly, Rabobank launched Acorn, a program that supplies upfront funds to farmers to invest in agroforestry. Along the same lines, biodiversity credits could be the next step in climate and nature financing.

The market is currently nascent but demand for voluntary biodiversity credits could reach as much as US$69 billion by 2050, according to estimates from the World Economic Forum (WEF).

3. Advisory services:

Banks can offer specialist advice and support to their corporate clients in assessing and mitigating their biodiversity footprints. This may include conducting environmental and social impact assessments, developing biodiversity management plans, and implementing leading practices to help minimize negative impacts on biodiversity.

Pricing the contributions of nature to the economy can help ensure that businesses and governments account for natural capital alongside physical, financial, and human capital. Banks can also help their clients to better navigate the complex landscape of environmental regulations, standards, and reporting requirements related to biodiversity.

Do challenges plague integration of natural capital efforts?

Understanding biodiversity and recognizing nature-related risks is a first step for many banks in their nature-positive journey. Successful implementation and assessment will, however, require banks to overcome some possible hurdles.

1. Trying to boil the (nature data) ocean:

The vast amount of information on biodiversity and natural capital can be overwhelming and confusing, likely making it difficult for many banks to set clear aims and goals.

Some banks may struggle to identify the drivers and dependencies of natural capital loss, especially as biodiversity encompasses the complex variability among living organisms across species and habitats. This can lead to a lack of clarity in decision-making and policy implementation.

2. Perceived lack of data:

Quantifying nature-related risks and opportunities in their lending and investment portfolios may be a key limitation for some banks, particularly as data on natural capital has not reached the level of sophistication of carbon emissions data.

Third-party vendors could play a key role in providing a standard or a baseline to start nature-related risk assessments, just as with the climate change initiatives. However, banks should not wait for third-party data vendors to provide consistent and robust data to initiate nature-related risk assessments.

Obtaining the information needed to understand a client or industry’s nature-related risks can be accomplished by integrating nature-positive outcomes with the client underwriting process and other risk assessments that currently exist, not by waiting for nature databases to emerge.

The goal is not to put in place a “perfect” nature-related risk program tomorrow; the goal is to get started by assessing the nature-related risk associated with business relationships with a goal of improving the bank’s approach as new information and tools become available.

3. Multiple regulatory frameworks:

Both developed and developing nations are coming up with specific nature-focused regulations and standards, with possibly more to come in the future. These standards, which are available in different geographies for different products and industries, will likely create additional complexity for banks, especially those with a global presence.

Banks will need to navigate various frameworks and standards, both local and global, and to adapt their operations efficiently.

They should determine which frameworks are most relevant to their specific context and help ensure compliance with multiple, and sometimes conflicting, requirements.

4. Limited cross-disciplinary expertise:

Banks may lack the necessary talent and resources to address biodiversity and natural capital issues. Banks should aim to recruit professionals with cross-disciplinary expertise in assessing biodiversity and natural capital risks across the banking value chain, as these fields are relatively specialized.

But using existing climate-focused infrastructure and teams can help bridge this gap. Banks should look to scale and upskill existing teams and leverage current resourcing models, rather than start from scratch. They should also look at conducting training programs on biodiversity loss and its direct impact on their value chain.

Multiple frameworks, standards, and tools already exist

Over the years, various governments, independent bodies, and industry-specific entities around the world have issued and recommended a variety of guiding principles and frameworks—many of which are voluntary—for action toward a nature-positive economy.

For instance, the Equator Principles, a financial industry benchmark for determining, assessing, and managing environmental and social risk in projects, have emphasized the consideration of nature risks in project finance.

These principles were initially formulated in 2003 and were later aligned with the International Finance Corporation Performance Standards in 2006. Performance Standard 6, in particular, focuses on sustainable use of natural resource and biodiversity conservation.

Similarly, the Natural Capital Protocol, launched by the Natural Capital Coalition in 2016, offers a framework for financial institutions to “measure and value natural capital impacts and dependencies across the entities and portfolios that they finance, invest in or underwrite.” 

And more recently, the Principles for Responsible Banking issued guidance (“Nature Target Setting Guidance”) on how banks could integrate nature-related considerations into their core operations and financing activities, in line with the aims set forth in the Global Biodiversity Framework.

The January 2024 update to the Global Reporting Initiative’s (GRI) Biodiversity Standard is another significant milestone for external reporting. Organized around four main pillars—supply chain transparency, location-specific impacts, direct drivers of biodiversity loss, and impacts on society—GRI 101: Biodiversity 2024 helps organizations meet growing demands from multiple stakeholders for information on biodiversity impacts.

But now, there are multiple principles, frameworks, and standards (collectively labeled as “resources”) that can be leveraged to enable institutions in addressing nature-related risks and challenges. Some deal with principles and targets, some provide standards for assessing, managing, and reporting on nature-related disclosures, and others offer tools for analysis.

In addition to the variety of frameworks published, banks can also leverage different biodiversity-related tools that can help them measure their impacts and exposure to nature. For instance, banks can utilize the ENCORE system to capture potential impacts and dependencies on nature to kick start their risk assessment journey.

The tool also categorizes the different ecosystem services to highlight how banks may be exposed to natural capital degradation. The Integrated Biodiversity Assessment Tool (iBAT) is another tool that can be helpful in banks’ investment processes to screen projects on nature-related risks.

TNFD should be a core guiding framework for nature-related actions within banks

Among the first steps on this nature-positive journey, banks should consider the principles and aims of the Global Biodiversity Framework that was finalised at the United Nations Biodiversity Conference (COP15) in Montreal in late 2022.

For the first time, the Global Biodiversity Framework included specific voluntary commitments by governments to reduce and reverse nature loss by 2030.

Specifically, Target 15 under the framework highlights the potential role of business in assessing and disclosing risks, dependencies, and impacts on biodiversity.

But when it comes to taking action to create nature-positive outcomes, the recommendations set forth in the final TNFD should be embraced.

The taskforce aims to help identify, assess, manage, and report on nature-related dependencies, impacts, risks, and opportunities (“nature-related issues”), encouraging organizations to integrate nature into strategic and capital allocation decision-making.

The TNFD framework is built around the same four pillars of governance, strategy, risk and impact management, and metrics and targets—consistent with the approach of Task Force on Climate-related Financial Disclosures (TCFD).

Recommended disclosures within the “governance” pillar deal with banks’ oversight, role, and policies related to nature. The “strategy” pillar focuses on the material effects of nature on business model, strategy, and financial planning. The “risk and impact management” pillar highlights the processes to identify, assess, and manage these effects in direct operations, supply chains, and overall risk management processes. “Metrics and targets” describes the nature-related metrics in use, and targets and goals set by the bank, along with its performance on the same.

One key aspect of the TNFD recommendations is that they incorporate existing frameworks, assessment metrics, and disclosure practices—including those of the International Sustainability Standards Board (ISSB) and the GRI.   Other features include:

  • Alignment with GBF: TNFD explicitly incorporates the Kunming-Montreal Global Biodiversity Framework’s goals, including the reporting of nature-related risks, dependencies, and impacts.
  • Consistency with TCFD framework and ISSB: TNFD closely aligns with TCFD, ISSB, and the EU’s Corporate Sustainability Reporting Directive, providing a strong basis for nature-related disclosures. In fact, TNFD included all the 11 TCFD-recommended disclosures, which have now been incorporated into the ISSB Standards. Those banks that have adopted TCFD disclosure practices should be at an advantage in implementing TNFD.
  • Accommodation of different approaches to materiality: Different jurisdictions and users define materiality differently, resulting in non-uniform disclosures. TNFD recognizes this divergence and offers a “double materiality lens.” The first, as a baseline, should be the International Sustainability Standards Board’s definition and approach to material information for general purpose financial reports. The second, if required, may use an additional materiality approach such as GRI and ESRS, that are incremental to the global baseline.
  • Specific guidance on metrics assessment: Considering the complexity and vastness of nature, measuring an institution’s impacts on nature and biodiversity can be a daunting task. It often requires multiple metrics and indicators, that may not be uniform or easily comparable.

To simplify this process, TNFD recommends three (3) different categories of metrics:

  1. a small set of core global metrics that apply to all sectors,
  2. a core sector metrics for each sector, and
  3. a set of additional metrics that best describe and capture the institution’s risk and exposure profile.

We recommend banks should look to use a combination of all three (3) of the aforementioned based on individual risks considerations to assess and disclose their impacts on nature and biodiversity.

  • Use of the LEAP approach: TNFD also recommends using its LEAP framework (locate, evaluate, assess, and prepare)—a four-phased assessment approach to assess and manage nature-related issues.

The LEAP approach acts as a “how to” guide for firms to identify potentially material issues. It builds on existing frameworks including the Natural Capital Protocol and the Science Based Targets Network methods. TNFD recognises that certain nature-related data may be hard to collect, creating roadblocks in implementation.

The TNFD’s Nature-related Data Catalyst initiative is an example of an effort that can help to accelerate such solutions and offer ways to accelerate the development and access to nature-related data.

Please expect more insights to follow in the second part of this blog.

More about the authors

This article is based on the Deloitte Center for Financial Services Research authored by: Ricardo Martinez, Stephanie Cárdenas, Sarah Haley, Val Srinivas

Objective of this article is to raise further awareness of the importance of putting nature and biodiversity on the business agenda and the crucial role that banks play. 


Loree M. Gourley


Loree M. Gourley is a Partner in the Deloitte Sustainability practice. She has more than twenty years’ experience advising clients in the financial service sector (asset owners and managers) and the private markets. Her sector expertise includes Life Sciences, Consumer Products, Agriculture & Real Estate and Oil & Gas across the FTSE350. She has core sustainability competencies across all elements of ESG having worked with institutional investors to champion a more equal balance between the interests of shareholders and broader stakeholders, and to disclose and implement transparent outcome-based transition plans. Loree is also Deloitte’s Nature lead and is committed to increasing the resilience and the value of nature and biodiversity across the ecosystem while enabling Artificial Intelligence (AI) to drive positive outcomes.