While most major companies have made progress collecting data and setting targets on their greenhouse gas emissions, relatively few have begun to tackle one of the biggest environmental challenges the planet faces — the loss of nature. Whether through excessive freshwater consumption, deforestation, or threats to biodiversity, global economic growth as well as the very survival of the planet is threatened by the shrinking reserves of natural capital.
Looking at scientific analyses such as the Potsdam Institute for Climate Impact Research’s Planetary Health Check, the evidence of deteriorating conditions is clear. Of the nine planetary systems necessary for life Potsdam monitors, the Earth is operating in the danger zone on six, including freshwater, land use, pollution, and biosphere integrity. This means the global economy has crossed the boundaries of what is safe for the preservation of life in these six systems.
Besides the larger threat to humanity, the current challenge to nature will also curb economic growth, with more than half of the global gross domestic product highly dependent on various aspects of nature including freshwater, biodiversity, soil, minerals, metals, and air. According to the World Economic Forum, $2.7 trillion in global growth could be lost by 2030 if the destruction of natural capital continues.
How banks can begin the arduous task of nature target setting
While banks and other financial institutions have a potentially pivotal role to play in the preservation of nature through their investment policies and portfolio companies, many struggle to develop the same kind of rigorous, science-based pathways to halting and reversing the loss. Our report, "Nature Target Setting," has methodically collected frameworks, metrics, and data that does exist for nature to help banks begin tackling the challenge of setting effective nature targets for themselves and their portfolio companies.
While the report focuses on mining and enterprises in the food value chain — sectors with some of the highest impacts on nature and common in bank portfolios — many of the lessons learned can be extrapolated for use in other industries.
Regardless of the sector, one of the first steps for a bank is to identify its nature hot spots — areas where its policies, operations, and portfolio companies have the greatest impacts on nature and especially biodiversity loss.
In our research, we have focused on three areas of nature loss deemed to be the leading causes of biodiversity loss: land use change, freshwater consumption, and pollution. But while there is a general understanding of which practices cause nature loss, there is limited data collection and transparency on individual corporate contributions to that loss and the actions necessary to curb or reverse it. For instance, many efforts in correcting land use change practices will be aimed at deforestation. Agriculture clears forests to have more land for planting and raising livestock, while mining companies clear large swaths of forest to accommodate their operations. But what should the targets be for an individual bank or company to halt and even reverse deforestation?
Global frameworks guide banks toward nature-positive action
Banks are not operating entirely in the dark. There are several helpful global frameworks that provide some pathways for banks and their portfolio companies to follow. One of the most useful is the Planetary Health Check and its boundary system, which documents the annual degradation of Earth’s systems. The goal for banks and companies would be to work their way backwards to determine what it would take to push various systems back into the green safe operating zone.
Other frameworks also have been constructed, such as the Global Biodiversity Framework (GBF), the Science Based Target Network’s land and freshwater guidance, the Intergovernmental Platform on Biodiversity and Ecosystem Services (IPBES), and the Taskforce on Nature-related Financial Disclosure’s sector guidance. For instance, one recommendation in the Planetary Health Check is to reduce freshwater intake in stressed areas by 1.5% annually and align water practices with scientific guidelines from groups like the SBTN.
One of the most recent and practical frameworks and data collection systems was provided by the European Union’s European Sustainability Reporting Standards and the Corporate Sustainability Reporting Disclosure (CSRD) legislation, of which the ESRS is a part.
In general, most of these frameworks are global or are at least broader than what most banks and companies need for practical implementation. The GBF looks to countries to translate its global standards into national ones, which would apply better to individual corporate situations. Forty-six countries have met that challenge so far, with several glaring exceptions among those with significant nature impacts including the United States, Indonesia, Malaysia, Russia, and several African nations.
Setting nature targets in finance’s highest-risk sectors
A hypothetical bank might begin the process of nature target setting looking at two broad industrial sectors — mining and the broader food value chain, including agriculture and food and beverage processing. Within these sectors, three critical environmental priorities — freshwater consumption, land use change, and pollution — stand out as essential areas. Setting effective targets requires identifying the right metrics and data to track progress and evaluate readiness.
As regulatory pressure mounts, banks are increasingly expected to establish clear nature-related targets. As a result, in the selected sectors, some institutions have adopted short-term goals aimed at curbing negative practices such as deforestation and encouraginge positive practices such as organic farming, monitoring biodiversity, rehabilitating land, and data collection. But longer-term targets that assess broader ecological impact or envision a higher state for nature were scarce.
Nature targets tend to be divided into three categories:
- Practice-based targets promote nature-positive activities like organic farming and discourage harmful activities like deforestation. While mMost leading banks have already embedded these into bank strategies and internal policies on financing and client engagement, they do not evaluate concrete progress and have overlooked some aspects of nature loss entirely.
- Impact-based targets focus om reducing specific environmental harms, measured through quantifiableble resource usage or emissions. These targets address the direct causes of environmental degradation, aiming to establish parameters such as reducing water withdrawals by 1.5% annually in stressed regions or aligning fertilizer use with European Union nitrogen limits. Banks should strive to set these as the next step in protecting nature.
- State-of-nature targets aim to restore ecosystem health and can be challenging to quantify and implement. These signify high-level objectives aimed at altering and improving the state of natural environments affected by industrial activities. Despite their complexity, these targets signal a deeper commitment to reversing nature loss over the long term.
The goal of the report is to encourage banks to incorporate impact-based targets in order to produce measurable positive impacts on nature. The research supports a holistic and sector-focused approach, calling on banks to push for targets that systematically integrate nature targets into banking operations.
The impact of target setting amounts to a global call for incorporating nature considerations into financial policies and strategies and ultimately into the broader global economy. This would be an effort underpinned by concrete actions, timelines, and metrics for targets that are both achievable and aligned with broader economic needs.
