The degradation of biodiversity represents a major challenge for the financial sector. Financial institutions, particularly insurers, are exposed to significant risks due to their interactions with natural ecosystems, whether through their dependencies or impacts.
Facing these challenges, WeeFin, as a sustainable finance expert, participated in a consultation on this crucial topic, providing insights on the assessment and management of biodiversity-related risks. In this article, we share our vision and concrete recommendations to enable financial actors to effectively integrate these issues into their strategy. We detail the methodologies and tools available to assess these risks, as well as specific actions to implement to mitigate them.
What is the consultation about?EIOPA is launching a consultation on the assessment and management of biodiversity-related risks by insurers as part of their Own Risk and Solvency Assessment (ORSA). The objective is to help insurers evaluate and mitigate their exposure to biodiversity loss risks, which can have significant impacts on their investments and insurance activities. Stakeholders have until February 26, 2025 to submit their comments, which will enable EIOPA to finalize its report to the European Commission by June 2025.
Our proposal
Joint assessment of climate and biodiversity risksWeeFin adopts a nuanced position regarding the assessment of climate and biodiversity risks. While we believe that in the long term, these risks should be evaluated jointly due to their interconnection, we recommend separate assessments in the short term for practical reasons. Nevertheless, we emphasize the importance of maintaining consistency between these two analyses.
Assessment approaches and toolsRegarding evaluation methodologies, WeeFin rejects the idea of a single indicator and favors a multidimensional approach. We recommend that financial institutions rely on various complementary data sources, such as the public source ENCORE for sectoral analysis, WWF Risk Filter for geographical analysis, and private data sources to obtain more detailed metrics.
Recommended concrete actionsIn terms of concrete actions, WeeFin advocates focusing on short-term objectives rather than distant targets that are difficult to achieve, such as contributing to nature-positive goals or committing to zero net nature loss. Recommended mitigation strategies include investments in natural capital, active engagement with companies, implementation of targeted exclusion policies, and monitoring of specific indicators.
Key points of attention:WeeFin particularly emphasizes the importance of adopting a progressive approach in assessing biodiversity-related risks. We highlight the need to combine technological and scientific expertise while capitalizing on experience gained in climate risk management. We also stress the need to allocate dedicated resources, whether financial, human, or technological.
In conclusion, despite challenges related to data availability and the complexity of the subject, WeeFin encourages financial actors to act now, without waiting for perfect methodologies, while relying on appropriate technological tools to facilitate this transition.
For our complete consultation response click here.
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