A report published yesterday by the climate data disclosure non-profit states that while 95 per cent of the financial sector – including the world’s largest banks, insurers and asset managers – have stepped up their efforts to take greater consideration of the risk posed by climate change to their business, still less than a third are taking into account the threats posed by nature-related problems such as forest loss and and water scarcity.

CDP said it had found significant gaps in how financial services oversee, implement, manage, and measure nature-related impact compared to climate change, and therefore called for urgent action from financial firms to address these gaps, starting with a system-wide recognition of the intrinsic link between the impacts on climate and those on nature.

Not capitalising on opportunities

The report, which analysed over 550 major financial institutions worldwide, found that a failure to integrate nature and climate considerations risked impeding the ability of these companies to fully identify, assess and disclose their impact, dependencies, risks, and opportunities from climate change and the net zero transition.

It said most firms lack the necessary governance mechanisms and board-level expertise to integrate nature-related issues across operations and just one in ten companies currently have the metrics to measure their portfolio impact for forests and water.

And, while greater opportunities than risks have been identified by companies across climate, forest and water issues combined in recent years – estimated to be worth over $5tr altogether –  less than 30 per cent of them are actually capitalising on those opportunities.

CDP also noted financial firms play a pivotal role in catalysing transformative shifts towards more climate and nature friendly business across the wider economy, due to their role as investors, lenders and underwriters.

It report argued that financial firms “can implement necessary internal mechanisms that enhance robust decision-making, and simultaneously step up their responsibility to demand credible and comprehensive data”

“Banks are already leading by establishing governance and board-level expertise to integrate nature-related issues across their operations,” it added.

Meanwhile, engagement can also be a crucial way for investors, as shareholders, to drive action by using their voting rights at AGMs and highlighting their priorities, it said.

Similarly, it argues that through engaging with policymakers, financial services firms can speed up the development and adoption of integrated environmental policies, laws and regulations.

Firms must ‘fully commit’ to addressing issues

Claire Elsdon, global director, requesting authorities – capital markets, CDP, said it was encouraging to see that financial institutions have made significant progress in integrating climate change risk considerations in their financial decision-making.

However, she insisted that they must now integrate nature and elevate it alongside climate as a priority across their strategies and financial planning.

“The first step is to understand that climate is just one facet of environmental impact,” she explained. “It is important that they take stock of the extent to which their portfolio, operations, services and the businesses they support, rely on and are impacted by nature.

“Financial institutions must fully commit to addressing environmental issues holistically to better position them to capitalise on emerging opportunities; offer green financing solutions that support businesses in mitigating deforestation and water-related impact; get ahead of upcoming reporting requirements; rapidly decarbonize their portfolio and meet net zero ambitions.”

The CDP report concluded that success in building a green and resilient financial system necessitates leadership and action from financial institutions informed by credible and comprehensive data.

“Only through intentional and robust environmental actions, backed by comprehensive regulation, can FIs continue to lead the charge in achieving net-zero ambitions, and succeed in future-proofing portfolios and build a resilient global financial system,” it said.

A version of this article originally appeared at Investment Week.