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  • hammaad saghir

Report: Financial Firms Undermining Achieving Net Zero Objectives By Omitting Nature-Linked Hazards

An analysis of more than 550 of the world's biggest banks, insurers, and asset managers conducted by CDP has discovered that only fewer than a third of these institutions have been affected by environmental problems.

CDP has cautioned that financial organizations may impede their journey towards achieving net zero if they overlook the connections, potential risks and chances connected to nature.

A climate data disclosure non-profit published a report yesterday, indicating that although 95 per cent of the financial industry, including the world's largest banks, insurers, and asset managers, have made progress in assessing the risk of climate change to their business, less than a third are considering the hazards of environmental issues such as forest degradation and water scarcity.

The CDP noted considerable disparities in how the financial sector manages, implements, and measures the consequences of climate change and those on nature. Thus they urged for a prompt reaction from financial establishments to tackle these discrepancies, beginning with comprehending the bond between the effects of climate and those on the environment.

Not Making the Most of Available Chances

An assessment of more than 550 big financial entities worldwide revealed that an absence of accounting for nature and climate concerns could obstruct these companies from ultimately recognizing, evaluating, and disclosing their effects, dependencies, dangers, and prospects resulting from climate change and the transition to net zero.

It was reported that most companies need more essential governance structures and board-level experience to incorporate nature-related matters into their processes. Additionally, only one out of every ten organizations currently has the metrics to assess the effect of their portfolio on forests and water.

Despite companies across climate, forest and water sectors having identified more opportunities than risks - estimated to be valued at over $5 trillion - only a tiny fraction of them have managed to take advantage of these opportunities.

The CDP highlighted the critical role that financial institutions have in stimulating the transition towards more sustainable practices in the economy via their activities as investors, financiers and insurers.

The report suggested that financial institutions should put into place internal measures to ensure sound judgement and increase their requirement for trustworthy and thorough data.

It was noted that banks had taken the initiative in setting up governing bodies and board members with the know-how to incorporate nature-related matters into their operations.

It was noted that engagement is a significant means for investors, as shareholders, to influence outcomes by using their voting rights at annual general meetings and drawing attention to their primary concerns.

The authors suggest that financial services organizations can quicken the process of devising and implementing comprehensive environmental laws and regulations by collaborating with policymakers.

Businesses must make a concentrated effort to deal with matters.

In her role as Global Director of Capital Markets at CDP, Claire Elsdon commented that it is heartening to observe that financial institutions have been making great strides in factoring in environmental risks when making their financial judgment calls.

Despite this, she made it known that now they must incorporate and give importance to nature in the same way they do to climate within 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 report generated by the CDP concluded that to achieve success in constructing a sustainable and robust financial system, financial establishments must take the lead and act upon reliable and complete 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.


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