Biodiversity Importance for Financial Institutions
In a recent survey conducted by the Sustainable Finance Cluster Germany, more than half of the participating credit and funding institutions in the country have revealed that they are not currently producing a standalone biodiversity report. The survey indicates that 72% of these institutions consider the protection of ecosystems to be essential, but only 40% fully meet the disclosure requirements of the EU's Corporate Sustainability Reporting Directive (CSRD) in relation to the protection of ecosystems.
The biggest challenges cited by 86% of the institutions are the effort and cost involved in meeting the disclosure requirements of the CSRD and producing a standalone biodiversity report. The reasons for these barriers are rooted in the complexity and resource intensity of biodiversity reporting.
Producing a standalone biodiversity report requires extensive data collection, monitoring, and analysis. Biodiversity impacts are complex to measure compared to climate-related financial risks due to the multifaceted interactions within ecosystems and lack of standardized metrics. Gathering robust, verifiable data is time-consuming and costly.
Another hurdle is the lack of standardized frameworks for biodiversity reporting. Unlike carbon accounting, biodiversity reporting lacks widely accepted methodologies and reporting standards. Financial institutions must invest effort to adapt or develop internal frameworks, increasing both cost and complexity.
Technical expertise and capacity also pose a challenge. There is a shortage of in-house expertise to conduct biodiversity assessments and integrate findings into financial risk management. Financial firms must either train staff or hire external experts, both of which contribute to higher costs.
Incorporating biodiversity risk into existing financial risk management and disclosures is still an emerging area. This transition requires significant organizational effort to align biodiversity considerations with financial decision-making and reporting processes.
Regulatory and market uncertainty also play a role. Ongoing developments in biodiversity-related regulations and expectations create uncertainty, discouraging institutions from investing heavily in standalone reports without clear mandates or market incentives.
Despite these challenges, the financial sector in Germany is shifting its perspective to include biological diversity as an important factor. This shift is moving into risk, strategy, and supervision processes. However, the survey shows that while institutions value the protection of ecosystems, they are struggling to fully meet the disclosure requirements of the CSRD.
This article is based on a survey by the Sustainable Finance Cluster Germany and does not contain advertisements.
[1] The broader sustainable finance ecosystem refers to the interconnected network of financial institutions, regulators, policymakers, and stakeholders working towards sustainable finance practices.
- The financial sector in Germany acknowledges the importance of environmental-science, particularly in the context of biodiversity protection, yet faces significant challenges in complying with the disclosure requirements of the EU's Corporate Sustainability Reporting Directive (CSRD) due to cost, complexity, and a lack of standardized metrics.
- The emerging area of incorporating biodiversity risk into finance has necessitated not only organizational effort but also investment in technical expertise, capacity, and adaptation or development of internal biodiversity reporting frameworks, which can be costly for financial institutions and businesses.
