Interactions of physical climate risk and nature risk for ESG information disclosure in the financial sector

There have been rapid developments in mandatory Environment, Social, and Governance (ESG) information disclosure in recent years. Under the requirements that have been developed, companies, including financial institutions, are required to analyse not only the climate risk they face but also the risk from biodiversity loss and ecosystem degradation, and their interactions with climate risk. For EU nations and other European nations including Norway, companies are subject to the Corporate Sustainability Reporting Directive (CSRD) requirements that came into effect last year and require such disclosures. Many financial institutions lack the expertise to sufficiently manage these requirements and need support not only to satisfy the requirements, but also to proactively manage their assets against the risks they face.

Under such regulatory developments, we have been working with financial institutions in Norway to support their ESG information disclosure activities, focusing on physical climate risk, nature risk, and their potential connections. In this talk, we highlight our approach, focusing on the opportunities we see for both financial institutions and the scientific community. These will be presented through a case study we conducted, focusing on data flow and availability, methodologies developed on bridging climate and nature research, and on the limits we faced as academic researchers. The collaboration has led to the development of methods that could position the financial institutions as leaders in the sector regarding risk management and building resilience towards climate and nature risk. Given the disclosure requirements, transparent methods and coherent data generation on physical and transition risks will be an opportunity for enhancing awareness of climate and nature risk, and for getting a comprehensive picture of the economic impacts of climate change (including the impacts of extreme events) and the benefits of avoided impacts via mitigation and adaptation actions.