Nature and Equity

“Nature and Equity” often aren’t included in the scope of financial institutions’ net-zero framing. However, they are crucial to the success of the net-zero transition, and the increased risks to nature and equity posed by climate change are interconnected with the push for decarbonization. As banks work to lower emissions and scale up climate solutions, they must do more to proactively protect nature, biodiversity, and underserved and marginalized communities.

Frameworks and resources to better incorporate nature and environmental justice into net-zero transition plans are currently in development. But banks can make progress in these areas even before formal guidance is available. Here, we explore immediate first steps that banks can take to incorporate the protection of nature and people into their net-zero plans. These include disclosing nature-related risks, making commitments to reduce and stop deforestation related to clients, and pursuing net-zero commitments in line with just transition principles.

Nature and Equity Takeaways

• Banks have a blind spot when it comes to nature-related risks. Banks should replicate their efforts to disclose nature-related risks under the Taskforce for Nature-Related Disclosures (TNFD) framework as they have done with climate-related risks. Widespread adoption of a disclosure framework for nature will be imperative to accurately account for financial risks related to nature.
• Net-zero commitments do not incorporate protection of critical ecosystems. Banks' commitments regarding deforestation are not consistent across geographies, sectors or business lines. Most banks also lag behind in implementing their policies to stop deforestation. However, even more glaring is the considerable lack of policies protecting other ecosystems that store carbon or support biodiversity, such as oceans and wetlands.
• Banks need to address the human and social risks of the net-zero transition. While understanding and use of the term “just transition” is growing, most banks have not fleshed out what it means to integrate a truly just and equitable transition into their lending and financing activities.

TNFD Framework

Nature-related risks such as deforestation, biodiversity loss and ecosystem degradation pose major threats to the long-term profitability of corporations and the economy at-large. The Taskforce for Nature-Related Disclosures (TNFD) provides a framework that firms can use to measure and disclose these nature-related financial risks. Such disclosures enable corporations and financial institutions to assess and manage their nature-related risk exposure and adjust their operational and investment decisions.

A preliminary version of the TNFD framework launched only months prior to our final data collection, with some parts still under development, therefore, few banks had disclosed under it. Still, this tracker measures a bank as “aligned” if it had joined the TNFD forum and reported under the framework at the time we collected data. Only one bank had issued a TNFD report, while several others have committed to a timeline for the publication of their inaugural reports. Banks that have not disclosed under TNFD  but have made a timebound commitment to disclose and/or are members of the TNFD forum receive credit for in the tracker as “partially aligned,” while banks that do not hold membership or have not made a timebound disclosure commitment are categorized as “not aligned”.

Deforestation Commitment

It is critical that banks address deforestation within the scope of their net-zero commitments. Because trees pull carbon dioxide from the air, deforestation directly contributes to climate change. Additionally, forest loss destroys biodiversity and endangers critical ecosystem services. Moreover, deforestation and natural resource exploitation are major human rights concerns, especially in developing countries and Indigenous communities where these activities can lead to displacement, violence and resource loss.

Banks’ first step should be to commit to stop financing corporations engaging in deforestation and work with client companies to build deforestation-free supply chains. While commitments alone do not guarantee action, they lay the groundwork for successful implementation.

Based on the Forest 500 definitions and assessments from Global Canopy, we consider banks to be “aligned” if they have an overarching commitment to reduce all deforestation and forest conversion (see definitions below of “conversion-free” and “deforestation-free”). Banks are “partially aligned” if they have a zero net deforestation policy, and are “not aligned” if they do not disclose any deforestation policy. The Forest 500 assessments currently include six commodities (palm oil, soy, beef, leather, timber, pulp and paper) identified as key drivers of deforestation; given this, these sectors would be good places for financial institutions to begin developing and implementing a deforestation policy. However, the most ambitious practice — and what we consider to be aligned — is for institutions to commit to stopping deforestation and forest conversion across all business lines within the institution, not just small geographies or sectors.

A comprehensive net-zero commitment should look beyond forests, too. While forests are essential to supporting people and biodiversity and storing carbon, so are many other natural systems, such as oceans. These should be considered by financial institutions in the future and will be included in subsequent iterations of this tracker.

Just Transition

A “just transition” upholds principles of equity, social inclusion and poverty eradication in all climate action; ensuring such as transition is specifically highlighted as an essential tenet of climate action by the Paris Agreement. As financial institutions shift toward a net-zero economy, they must actively employ practices that do no harm to vulnerable populations and instead empower them.

High-emitting industries transitioning to a low-carbon future will inevitably affect the livelihoods of workers and communities reliant on those industries. A just transition would ensure that social safeguards support displaced workers, clean energy is accessible and affordable, and existing environmental injustices are reduced. Private financial institutions can contribute to a just transition by identifying adverse effects their climate strategies may have on people, particularly vulnerable groups, while seeking to create positive impact that will support their investment aims and society.

It is not enough to simply endorse the idea of a just transition; to be “aligned” with our framework, a bank must have published a policy tying just transition principles to its net-zero commitment. It must explicitly reference the Paris Agreement or the International Labour Organization’s (ILO) Just Transition Guidelines. More comprehensive guidance and standards on how to integrate just transition into financial institutions’ net-zero strategies are still emerging, but at this stage, we rely only on the Paris Agreement and ILO guidelines.