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Careers: biodiversity
Banking on a set of new skills
Banks are now required to measure nature loss and the risks it poses to the financial system. This will mean a shift in the hiring patterns of banks, Sarah Butcher reports
No sooner have you got to grips with one thing, than a far more complex challenge presents itself. Banks that have become familiar with disclosing how much carbon they emit, how they’re going to meet net zero targets and how they propose to finance sustainable infrastructure investments, are now being asked to up their game. Regulators want them to consider something broader – and much more nebulous too: their approach to natural capital and biodiversity. What will happen to their business if natural systems stop functioning as expected?
It’s a gigantic conceptual leap, particularly when you’re an institution filled with people used to measuring market, credit and counterparty risk. But it’s a leap that must be taken. French bank BNP Paribas recently estimated that litigation and reputational risk from funding deforestation alone could be equivalent to 25% of banks’ market value, and even that may understate the reality.
It’s an illusion to think we can preserve financial stability if this degradation of nature continues
Nature loss could be catastrophic. The stability of the Earth’s biosphere over the past 10,000 years has “enabled the development of modern societies”, says the Network for Greening the Financial System (NGFS), a group of 114 central banks and financial supervisors that aims to accelerate the scaling up of green finance. The contemporary banking system is a product of modern societies, so it’s in its interest that the biosphere is perpetuated.
Regulators are already exerting pressure on banks. Speaking last year, Sarah Breeden, Deputy Governor for Financial Stability at the Bank of England, said nature underpins “everything” that humans do. There’s a clear link between “nature loss and financial risk”, she said; it must be measured, even if “identifying and sizing” that risk is hard.
In September 2023, Klaas Knot, Chair of the Financial Stability Board and President of the Dutch Central Bank, went further in a speech at the launch event of the NGFS Conceptual Framework on Nature-related Financial Risks. “The rapid degradation of nature is threatening ecosystems,” said Knot, adding that “it’s an illusion to think we can preserve financial stability if this degradation continues”. As a start, banks need to help “measure nature degradation and its effects on our economy and the financial system”, he declared.
Some of the most significant progress has been made by Banco Santander in Brazil. Its efforts to monitor client responses to water scarcity have been highlighted as an example of best practice by the CDP, a non-profit organisation that manages global environmental reporting standards.
Fiona Hyde, Head of Sustainability and Responsible Banking, Santander UK, says the bank has been gaining from the expertise of its Brazilian cousin, which has been developing biodiversity measurement methodologies. Santander UK is working on its own nature-related financial disclosures but Hyde says it’s not easy. “Biodiversity reporting is in its infancy,” she says, particularly compared with traditional climate reporting.
A biodiversity reporting framework is being initiated in the UK though the government’s backing of the international Taskforce on Nature-related Financial Disclosures (TNFD), but its first set of recommendations were only released in September this year. Santander is reviewing these recommendations and seeing how they work in practice before rushing into anything, Hyde says.
The nascency of the recommendations might be why many banks have held back on creating new biodiversity reporting teams. Jeff Morris, a partner at headhunting firm Odgers Berndtson which helps staff retail banks, says he’s yet to be contacted by banks mining for talent to augment their biodiversity skillsets. Rather than hiring externally at this stage, Hyde says they’ve focused on upskilling existing staff on “environmental, social and governance (ESG) issues through education programmes”.
Santander’s existing Sustainability and Responsible Banking team and its Climate Change Risk team have broadened their remit. Ultimately, all staff need to be aware of the impact of the bank’s activities on nature, says Hyde.
Even so, it seems that specialist staff will be necessary. Consulting firms are ahead of the game. William Mitchell, the UK Nature and Finance lead at Deloitte, moved into the role in June this year. He says banks are starting to get to grips with the issue and are “beginning the process of assessing their exposure” to “natural capital” and “ecosystem services” but that it’s a “substantial challenge”.
“Unlike climate, which has CO²e as a currency, and 1.5 degrees as a target, nature lacks ways to measure impact or targets,” he says. “Nature-related risks are hyper-localised and incredibly varied, requiring geo-specific insight and assessment tailored to a multitude of different living things.”
Mitchell studied history and geography at Leeds University and has since taken courses in sustainable finance and business and climate change at Cambridge. As banks build out their teams for assessing biodiversity and natural capital risk, he says a different set of skills to the traditional banking background will be needed. They will include people with ecology backgrounds and experience in “mobilising conservation finance and designing nature-based solutions”.
People who are able to process complex data on nature are in increasing demand by banks
If biodiversity degradation and risk is to be managed and quantified it will also, inevitably, require people competent in gathering data relating to biodiversity. In August 2023, the TNFD proposed a new Global Public Data Facility to establish the biodiversity data that will guide decisions for the financial sector.
Mitchell says it’s likely to include everything from data derived from satellites to eDNA metrics (which use ‘environmental DNA’ to determine the presence and abundance of species). This will also require new skills. “Staff skilled in the use of remote sensing (that is to say the use of satellite monitoring technology)”, will be needed, he predicts.
Drone flyers may also be required, says the TNFD. And the same may apply to people familiar with techniques such as ‘AI-powered acoustic imaging systems,’ that can detect how frequently species pass by.
And yet data is nothing without its analysis. People able to process “complex data on nature are in increasing demand”, says Mitchell. There are signs that some banks are moving on this already. HSBC declined to comment but LinkedIn shows that in early 2021, Matteo Oriani, a manager in its credit risk analytics team, moved across into ESG risk analytics, where he focuses on climate and biodiversity risk for the bank.
Oriani conducts research and develops methodologies to assess nature and biodiversity impacts for HSBC, based on the TNFD framework. He’s a banker rather than a biologist, having studied economics and finance at university in Milan.
Banks are unlikely to do it all on their own, though. Consultants such as Deloitte and third-party data providers are already detecting an opportunity in the biodiversity risk space. Delphine Bartre at Paris-based Iceberg Data, a fintech firm, says it helps to have dedicated staff who understand data related to biodiversity specifically. Iceberg intends to provide this to clients in the financial sector: “We have analysts who can understand and interpret the biodiversity data provided,” she says.
Yet even Bartre acknowledges that data can’t do everything when it comes to measuring biodiversity impacts and risks. “The correct approach is a mix of quantitative and qualitative disclosures,” she says, with the qualitative disclosures including detailed explanatory notes in banks’ annual reports.
Mitchell, meanwhile, cautions against the reductive thinking implied by a data-led approach: “If organisations lack the necessary skills or the capacity for systems thinking – which involves understanding the world in terms of wholes and relationships, rather than isolated parts – and can’t effectively interpret data and tools, it’s unlikely they’ll successfully address nature-related risks,” he warns.
Sarah Butcher
Sarah Butcher is Global Editor for eFinancialCareers. She is involved in many financial career issues and is a leading commentator on the subject, both in the UK and the US
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