Environmental Disclosure Report for Financial Institutions
The international research institute CDP released a report on environmental disclosure of financial institutions, which aims to analyze the information disclosure of 556 financial institutions in terms of climate and nature.
CDP argues that while climate change is already widely considered in financial institutions’ strategies, there is still a lag in nature-related disclosures. To achieve net-zero emissions by 2050, financial institutions, regulators, and regulators need to facilitate the natural transition and avoid negative impacts on ecosystems.
The Importance of Environmental Disclosure
The emergence of the Kunming-Montreal Global Biodiversity Framework (GBF) reflects the global pursuit of a green financial system. At COP15, countries pledged to protect 30 percent of the planet’s land and sea. The World Economic Forum estimates that a total of US$44 trillion of global GDP depends on natural resources, so natural risk is of great significance to financial institutions.
As the framers of environmental disclosure standards, the Taskforce on Climate-related Financial Disclosures (TCFD) and the Taskforce on Nature-related Financial Disclosures (TNFD) have established climate disclosure and natural disclosure frameworks and apply them to financial institution disclosures.
Related Post: TNFD Releases Global Natural Data Report
Environmental Disclosure Report of Financial Institutions
According to the disclosure framework of TCFD and TNFD, CDP participated in the environmental disclosure report of 556 financial institutions. The number of subjects disclosed this time increased by 37% compared with 2021 and 67% compared with 2020. 272 financial institutions disclosed information on forest resources for the first time, and 275 financial institutions disclosed information on water resources for the first time.
CDP found wide variation in the disclosure actions of financial institutions on climate change and natural resources. 91% already have board oversight of climate issues, while only 32% have oversight of natural resource issues. In terms of specific personnel on the board of directors, 68% have a climate-related professional background, while only 24% have a natural resource background.
In terms of environment-related risks and opportunities, 85% of financial institutions have already started assessing their portfolio climate exposures, while only 20% have started assessing natural risk exposures. 72% of financial institutions have identified climate-related risks that have a material impact on their business, compared to 23% for natural risks. It is likely that these assessments underestimate the magnitude of nature-related risks and their possible future impacts.
In terms of actual actions, 95% of financial institutions have addressed the impact of climate change, while 26% and 28% have addressed the impact of forest resources and water resources. 81% of financial institutions have provided customers with products related to climate change, while products involving natural resources are less than 30%.
In terms of scenario analysis, 65% of financial institutions have carried out climate-related scenario analysis, while only 7% and 10% have scenario analysis for forest resources and water resources. At the same time, most nature-related scenario analyzes are conducted as part of climate scenario analyses.
CDP’s Advice on Environmental Disclosure Report
CDP believes that financial institutions need to be aware of the importance of natural resources in environmental disclosure and reduce negative impacts on ecosystems. Financial institutions need to incorporate nature-related factors into strategic planning and establish a comprehensive governance process to monitor natural matters. Financial institutions can also proactively identify and manage nature-related risks to portfolios. At the same time, they can implement the relevant standards of TNFD and prepare for possible mandatory natural disclosure in the future.
As the activities of financial institutions involve a large number of companies and investors, CDP believes that they can have an impact on these companies and investors in their business, such as setting science-based nature targets, promoting broader nature commitments, and helping their clients achieve net zero emission.