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Expertise 13.04.2022

Demonstrating how nature-related risks can impact investors

Demonstrating how nature-related risks can impact investors

UBP joined forces with Deutsche Bank to address how the transition to a sustainable and resilient food system affects fertiliser company valuations in a contribution to the CISL’s latest report.


If nature is not protected, at least USD 10 trillion of GDP will be lost by 2050 due to the decline of ecosystem services. By identifying and assessing nature-related financial risks, nature can be integrated into financial decision-making, recognising nature as the heart of the economy and remaking the relationship between people and the planet. *

“CISL’s “Handbook for Nature-related Financial Risks” was a very useful framework to help us assess the use case on transition risk, especially in terms of approaching the problem in a systematic way. The work we did on the use case shows that estimating nature-related financial risks is possible but very difficult with the current data set. Therefore, in addition to a detailed study on a sector, direct engagement with companies is necessary for a thorough analysis.”

Özgür Göker, Impact Analyst at UBP

Rupert Welchman, Portfolio Manager Impact Equities at UBP

CISL’s latest publication, Integrating Nature: The case for action on nature-related financial risks, provides the business case for integrating nature-related risks into financial decisions by detailing why action is needed, how action can be taken and what is now needed to accelerate the integration of nature into finance, and by setting out use cases that assess nature-related financial risks.

CISL worked with member institutions of the Banking Environment Initiative and Investment Leaders Group to research use cases that quantify and assess specific nature-related financial risks for this new report. As a direct result of the collaboration, participating financial institutions are now allocating additional resources to the assessment of nature-related financial risks.

“The Case for Action is a timely and practical follow-up to the “Handbook for Nature-related Risks”. We are moving from the ‘why’ to the ‘how’ and the urgency of this next step could not be greater.”

Victoria Leggett, Head of Impact Investing at UBP

The report offers the following insights:

  • Banks and investors can already measure nature-related financial risks with existing tools and data.
  • Nature loss creates material financial risks, leading to stock valuation declines approaching 50% and multiple-notch credit rating downgrades.
  • The risks quantified are the tip of the iceberg: wider risks to tax revenues and supply chains will greatly amplify the negative consequences of nature loss.

Dr Nina Seega, Research Director, Centre for Sustainable Finance at CISL said:

“This is an incredibly timely report that begins to frame the sizeable work needed for financial institutions to turn their models around to be nature-considerate and also to begin the reallocation of capital so our environment is protected and regenerated. By detailing precisely how nature loss is financially material, these use cases underscore the need for action and show that financiers can assess nature-related financial risks today.”

For this report, and in collaboration with Deutsche Bank, UBP worked on the use case entitled The impact of EU Farm to Fork strategy on market value of fertiliser companies, which addresses how the transition to a sustainable and resilient food system impacts fertiliser company valuations.

The use case finds that policies reducing fertiliser usage could lead to valuation declines of between 12% and 46% for two major fertiliser producers. If extrapolated to listed fertiliser producers globally, equity value across the sector could decline by USD 25–67 billion.

The analysis showcases the financial materiality of nature-related transition risk, underscoring the need for financiers to engage with at-risk portfolio companies about how their business strategy and operations can play a role in transforming the food production system.

Since February 2018, UBP has collaborated with the Cambridge Institute for Sustainability Leadership (CISL) as a partner of the exclusive Investment Leaders Group (ILG). The ILG is a global network of pension funds, insurers and asset managers, with over USD 12 trillion under management and advice, committed to advancing the practice of responsible investment. It is a voluntary initiative, driven by its members, facilitated by the CISL, and supported by academics at the University of Cambridge. The ILG´s vision is an investment chain in which economic, social and environmental sustainability are delivered as an outcome of the investment process as investors go about generating robust, long-term returns.

* Source: https://www.cisl.cam.ac.uk/resources/publications/integrating-nature-case-action-nature-related-financial-risks

Impact investing
CISL report:

Nature-related financial risk: use case

The EU Farm to Fork Strategy and Fertiliser Companies

Full CISL report

Integrating Nature

The case for action on nature-related financial risks

Press release

CISL report

New Cambridge Institute for Sustainability Leadership finance sector collaboration demonstrates materiality of nature-related risks to drive action

Expertise

Actions globales

Investir dans des sociétés affichant un profil de création de valeur supérieur et pérenne.


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