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F4B PROJECTS

BALANCE SHEETS

F4B, working with the Basic Roots, an India based financial advisor has developed a methodology for assessing the materiality of biodiversity on financial institution balance sheets.

The methodology uses readily available data to estimate:

  • Dependency risk: Almost all businesses are in some way dependent on nature and ecosystem services. For example, fishers rely on healthy stocks of fish; apple growers rely on wild pollinating bees; and the pharmaceutical industry relies on natural substances for the development of new drugs. If these ecosystem services are lost, businesses will suffer.

  • Nature risk: We estimate the expected cost to society of the potential damage to nature that the activities that asset base of finances could cause. We term this “nature at risk”. Some businesses damage nature, for example, by converting tropical rainforest into farmland to produce traded commodities such as palm oil, soya and beef. This damage to nature reduces the supply of essential ecosystem services to society.

 

The methodology shows that any financial institution can and should make a credible, first-pass, biodiversity-related stress-test of their balance sheet.

In its first application we have applied it to the balance sheet risk of over 450 development finance institutions (DFIs) using publicly available information on their lending activities.

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