AFR: Banks preparing new disclosures to show impact of lending on nature

Banks are not only having to get a grip on the emissions of their customers, but also the effect that lending is having on the natural environment.

With so much attention on net zero, the Task Force on Climate-related Financial Disclosures, or TCFD, a global framework for disclosing climate-related risks, has risen to prominence.

But another acronym, the TNFD, the Taskforce on Nature-related Financial Disclosures, is looming large as both a compliance risk and an opportunity for banks to explain how customers using their capital are affecting nature, from biodiversity to the quality of land and water.

Like the TCFD, the TNFD has been designed to help standardise reporting for banks globally. The Australian Banking Association is working to build awareness about the obligations, which begin in September next year, after a draft package was released in March.

Push towards ‘nature positive’

The World Economic Forum has estimated more than half of the world’s economic output, or $US44 trillion ($61.7 trillion), is moderately or highly dependent on nature. It is an issue melding into Australia’s consciousness given bushfires, floods and the degradation of coral reefs.

TNFD obligations will push banks towards being “nature positive”, requiring them to invest more into nature to offset the impact on biodiversity loss or land clearance from activities within their lending portfolios; the nature equivalent of scope 3 in the emissions space.

“This is coming fast. Many organisations will have to start disclosing in a year and many organisations are really early wrapping heads around this,” Mr Symons said.

Deloitte’s Banking on Natural Capital report points out that the destruction of natural ecosystems is a significant source of greenhouse gas emissions, and that nature plays an essential role in combatting climate change. It also shows that climate change and nature loss are linked and should be tackled concurrently.

“We are moving from a state of understanding climate credit risk to actually doing something about it, and for many organisations, some decarbonising will be through nature-based solutions, which can provide a most cost-effective way of taking action now,” Mr Symons said.

As well as de-risking existing investments and assets, the TNFD will also help banks create new “green” lending products and activate new markets, including a push towards trade credits attached to nature.

Full story: AFR

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