Europe’s biggest banks are significantly dependent on ecosystem services, a new report by the EU Directorate-General for the Environment has found.
According to the directorate, for every dollar in the equity holding portfolios of Europe’s 10 largest banks, 26 cents are highly dependent on ecosystem services.
Overall, this equates to around $335 billion (€317 billion), or 26.8% of the equity held.
Ecosystem services, or ES, are defined as ‘any benefit that humans get from nature’, such as services linked to agriculture, fishing, waste management, and other utilities that depend on stable ecosystems.
‘A pivotal role’
‘Banks play a significant role in our society and have a pivotal role in fostering sustainable development,’ the directorate noted. ‘Assessing, understanding and disclosing banks’ dependencies on ES can help to better align the functioning of our economies with the quality and quantity of ES available, and define healthy levels of ecosystem services to ensure financial resilience and stability.’
According to the study, around $335 billion (€317 billion) of equity holdings are exposed to ecosystem-related risks, with UBS Group AG and Deutsche Bank AG the most dependent on ecosystem services.
Ecosystem services most at risk, according to the directorate, include mass stabilisation (to prevent landslides and soil movement) and erosion control; surface and groundwater availability; and flood protection.
‘The researchers note that the sampled equity portfolios have a high dependency on water-related ES, and this, along with soil erosion risks, could provide an area of concern for equity portfolio managers,’ the report stated.
‘Transmission channels’
It also highlights a number of industries that act as important ‘transmission channels’ between ecosystem services-related risks and financial risks for banks – electrical utilities, for example, rely on ES factors such as ground and surface water, water-flow maintenance and water quality, bioremediation and filtration, and climate regulation and mass stabilisation.
The report adds that banks should seek a greater understanding of their dependancies and exposure to ecosystem services, and seek to become ‘ecosystem services champions to ensure their own financial sustainability and longer-term resilience’. Read more here.
