Ecosystems deliver a broad range of ecosystem services (ES) that underpin human well-being. The loss of biodiversity and degradation of ecosystems has an increasingly negative impact on society and businesses, including the financial sector. Through their investments, financial institutions can be heavily dependent on ecosystem services and deterioration of nature therefore causes risks for financial institutions: physical risks, transitional risks and reputational risks. Assessing the extent of the different risks requires insights in the impact of investments and loans on biodiversity as well as insights in the dependencies on nature, biodiversity and related ES.

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To gain understanding of how monetary valuation data on ES can assist financial institutions in decision-making, we conducted rapid ES assessments, using the ESVD, to analyze anonymized biodiversity-related risks for two financial institutions. The objective of this project was to show that by combining data from the ESVD with detailed land use change data, for example, based on satellite information, it will be possible to: 

 

1. Facilitate the structural assessment of the impact of investments by financial institutes on ecosystem services and its monetary value.

2. Gain better insight into the financial risks due to biodiversity change.

3. Understand how this information can be integrated into future assessment methodologies.

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The assessments for the two case studies clearly show that land-use changes affect many different ecosystem services that represent a very high (monetary) value. Even investment funds with a sustainability focus, have to be aware of the substantial negative effects on ecosystems and the services they provide, both in time and space, when investing in large-scale land-use change. By not having insight in the effects on ecosystem services and their (monetary) value, it is difficult to oversee the extent of the physical, reputational and transitional risks that are at stake.

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The availability of ESVD, in combination with information about land use changes and/or biodiversity degradation, creates the opportunity for financial organizations to make a better, more complete, inventory of the physical, reputational and transitional risks. It provides a more complete picture of the consequences of investments. Naturally, governments, NGOs and the public also have the opportunity to gain a better understanding of ecosystem services and the consequences of changes in biodiversity. Therefore, the demand for this type of information as well as the demand for transparency increases.

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What our analysis also made clear is that you need a wide range of expertise to make strong assessments. In our own team we saw the need for biologists to understand and interpret the ecological changes. To make the monetary estimates, environmental economists and data analysists were needed. Additionally, we needed product and business developers to properly translate the consequences of the analysis. We also recognized this need within the financial teams. To steer towards the right financial and social decisions you need multi-disciplinary teams from different layers of the organisation. With this report we show that by quantifying ecosystem services and their monetary value, you create a common language that makes it possible to include biodiversity more fully in the daily decision-making within financial organizations, but also within governments and society as a whole.

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