Australia’s unique biodiversity is under threat, leading to significant risks for financial institutions. This report assesses ten banks and ten super funds in Australia, analysing their strategies, risk management, target setting, and stakeholder engagement regarding nature-related risks and opportunities. Despite some progress, substantial gaps remain.

Introduction

Financial institutions’ dependence on ecosystem services highlights the critical nature of integrating nature-related risks into decision making. Australia’s degradation of natural environments poses risks to economic stability, with financial institutions playing a pivotal role in mitigating these risks.

Methodology

The report uses survey data from ten banks and ten super funds, leveraging international frameworks such as the TNFD, GRI standards, and SBTN guidelines. Collaboration with experts and participant feedback ensured robust data collection and analysis.

Discussion

Introduction questions

Board-level accountability for nature-related issues is growing among banks, with 60% assigning responsibility to the board, compared to 10% of super funds. Banks are under more pressure from stakeholders, including regulators and First Nations groups, to respond to nature-related issues. Both banks and super funds face challenges such as internal resourcing and data availability, impacting their progress.

Strategy

Most banks (90%) have policies addressing nature-related issues, though only a few are specific to nature. In contrast, 40% of super funds have such policies. Banks have made more progress than super funds in assessing and disclosing nature-related impacts and dependencies, reflecting their more advanced integration of nature into their strategies.

Risk management

Banks favour the ENCORE tool for conducting sector-based impact and dependency screens, while most super funds have not yet defined their materiality approaches. The lack of comprehensive nature-related assessments has hindered super funds’ progress in managing and monitoring these risks. Banks have been more proactive in establishing risk management processes.

Target setting

Only 20% of financial institutions have set nature-related targets, though there is a growing trend, with more institutions planning to set targets within the next two years. Westpac, for example, has committed to no deforestation as part of its emissions reduction target for the agriculture sector. Progress on target setting has been slow, but momentum is building.

Stakeholder engagement

Banks and super funds employ various strategies to engage stakeholders on nature-related issues. Super funds focus on stewardship and engagement, while banks use financial incentives. However, many institutions still lack processes for engaging Indigenous Peoples and local communities, which is critical given their role in safeguarding biodiversity.

Conclusion

Financial institutions are increasingly recognising the risks associated with nature loss. However, significant gaps in target setting, data utilisation, and policy development remain. Accelerated momentum and enhanced advocacy are necessary to meet international commitments and protect biodiversity.

Next steps

Financial institutions should set science-based targets covering the most material nature-related issues and use a double materiality approach to disclose nature-related impacts and dependencies. Clear nature-related risk management processes should be in place, integrating these issues into strategies and monitoring. Ensuring board-level accountability for nature-related strategies is crucial, alongside engaging high-risk customers and investee companies on nature-related targets. Developing policies for engaging with Indigenous Peoples and local communities, and advocating for regulatory frameworks supporting nature-related risk disclosures, are also essential steps.

Recommendations

The report highlights the need for enhanced transparency in nature-related disclosures and full integration of nature-related issues into financial decision making. Strengthening engagement with Indigenous Peoples and local communities, addressing data challenges, and advocating for regulatory support are critical to advancing nature-aligned financial practices.

This report underscores the need for continued progress and increased efforts by Australian financial institutions to address nature-related risks and opportunities comprehensively​.