Introduction

The resilience of nature underpins the prosperity of the global economy, and its decline presents a critical systemic risk to financial stability and human wellbeing. Research from the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) confirms that nature loss can have a material financial effect on organisations. Bank chief risk officers (CROs) and risk committees are increasingly expected to understand the degree and severity of their organisation’s dependencies and impacts on nature. While banks are directly exposed to nature-related risks through credit and investment portfolios, they also have a vital role in financing the transition to nature-positive outcomes.

Regulatory and supervisory expectations are shifting globally. The European Central Bank, the Monetary Authority of Singapore, and the Swiss Financial Market Supervisory Authority have issued guidance for integrating environmental and nature-related risks into governance. Progress is already evident through the UN Principles for Responsible Banking (PRB); as of October 2025, 84 PRB members have identified nature as a key impact area, with 13% setting initial targets and 32% establishing robust targets. Furthermore, over 45 PRB signatories are now using the Taskforce on Nature-related Financial Disclosures (TNFD) framework. The TNFD itself comprises 40 senior executives representing over USD 20 trillion in assets under management across more than 180 countries.

Understanding nature’s relevance to our business

Banks have significant dependencies and impacts on nature through the finance they extend to clients. Because nature is location-specific, identifying exposure to sensitive ecosystems is critical, though many banks currently lack granular location data for all portfolio activities. The report suggests a phased, risk-based approach to data collection, prioritising segments by their impact or dependence. For example, Barclays conducted an assessment of its mining and European power portfolios using heatmapping. It identified three water-related dependencies and five significant impacts, including land use change, water use, and pollution of air, land, and water. These insights allowed the bank to select asset-level metrics for client engagement.

Nature-related risks are categorised into physical, transition, and systemic risks. Physical risks result from the degradation of nature and loss of ecosystem services, such as soil quality decline. Transition risks stem from misalignments with actions aimed at protecting nature, such as the EU Deforestation Regulation (EUDR). Systemic risks arise from the breakdown of entire systems, often triggered by modest tipping points. Banks are encouraged to use transmission channels to categorise how these issues translate into prudential risks. This includes assessing how nature-related risks may manifest across short-, medium-, and long-term timeframes.

Commercial opportunities also emerge as banks help clients address deforestation and water scarcity. These include nature-based solutions, nature bonds, and biodiversity credits. Understanding the interplay between nature and climate is essential, as climate change is one of the five direct drivers of biodiversity loss. Actions to respond to nature loss often have synergies with decarbonisation, such as peatland restoration. Banks should work towards integrating nature into existing risk management processes, including the Internal Capital Adequacy Assessment Process (ICAAP) and stress testing, while acknowledging that quantitative modelling for nature is still in its infancy.

Understanding the external context

The policy landscape has advanced rapidly following the Kunming-Montreal Global Biodiversity Framework (GBF) at COP15 and the work of the International Sustainability Standards Board (ISSB) on nature-related standards. Target 15 of the GBF calls for mandatory reporting of nature-related impacts by 2030. Jurisdictions such as China, India, and the EU have already introduced requirements like the Business Responsibility and Sustainability Report (BRSR) and the EUDR. Investor expectations are also rising, supported by initiatives like the Principles for Responsible Investment (PRI) Spring and Nature Action 100.

Effective client engagement is a key tool for managing credit risk. Banks should develop structured engagement plans, prioritising high-impact sectors and providing staff with the training needed to discuss nature-related issues confidently. This engagement supports internal risk analysis and helps identify how clients can mitigate their impacts on nature and secure more resilient cashflows.

Assessing organisational competence on nature-related issues

Institutionalising nature-related expertise is vital for long-term competitiveness. CROs should ensure that roles and responsibilities are clearly defined across risk functions and front-office teams. Given the technical specifications required, banks may need to obtain realm-specific expertise in areas such as water or ocean risk. Some major banks have established expert advisory councils or partnerships with scientific institutions to bridge these knowledge gaps.

Finally, banks must remain vigilant regarding their legal responsibilities. Exposure to environmental crime, wildlife trafficking, and issues like PFAS chemicals or illegal deforestation can create significant reputational and litigation risks. Fiduciary responsibility now includes ensuring the bank’s interaction with nature is captured as a core part of its risk assessment framework across all jurisdictions of operation.