From Heatmaps to Action: how Financial Institutions Can Get to Grips with Environmental Risk

Nature risk is complex, local and difficult to reduce to a single metric. But that should not stop financial institutions from acting. In a recent Natcap webinar, sustainability leaders from Standard Chartered and UBS discussed how banks can move from high-level portfolio screening to better client engagement, risk management and investment decisions.

Financial institutions have spent years building the systems, data and expertise needed to understand climate risk. Nature presents a different challenge.

There is no single unit of measurement equivalent to a tonne of carbon. The condition of nature varies from one location to another. And a company’s most material exposure may sit not in its own operations, but several tiers into its supply chain.

Yet nature loss is already translating into business interruption, higher input costs and financial losses. Financial institutions cannot wait for perfect data before responding.

That was the central message from Natcap’s recent webinar on measuring nature risk in financial portfolios, hosted by Natcap CEO Sebastian Leape. He was joined by Marisa Drew, Chief Sustainability Officer at Standard Chartered, and Judson Berkey, Managing Director in the Chief Sustainability Office at UBS.

Their discussion highlighted five lessons for financial institutions trying to turn a complex environmental issue into useful financial analysis and action.

1. Treat nature as a distinct risk, at least for now

Climate change and nature loss are deeply connected. Climate change is one of the five major drivers of nature loss identified by IPBES, alongside land- and sea-use change, pollution, the direct exploitation of organisms and invasive alien species.

Over time, climate and broader nature risk are likely to become more integrated within financial institutions’ risk frameworks. Switzerland’s financial regulator, FINMA, has already taken this approach: its nature-related financial risk circular encompasses climate as well as issues such as water, land use and pollution.

But there is a practical case for giving nature dedicated attention today. Standard Chartered currently treats it as a distinct risk driver so that it is not subsumed within mature climate policies before the bank has properly understood its nature-related dependencies, impacts, risks and opportunities.

This focus also creates institutional capacity. Standard Chartered established a Nature Innovation Hub whose remit spans both risk management and the development of new commercial opportunities, from piloting novel transactions to bringing together the different actors needed to make projects investable.

The lesson is not that nature must remain separate forever. It is that integration should not become dilution.

2. Financial institutions are not starting from zero

Nature may be a relatively new category in financial reporting, but banks have managed aspects of nature-related risk for decades.

Environmental and social risk frameworks already contain sector policies for areas such as forestry, palm oil, beef, mining and agriculture. These commonly establish activities a bank will not finance, requirements clients are expected to meet, and areas where improved practice is encouraged. They also guide enhanced due diligence for higher-risk clients and transactions.

This existing infrastructure offers a strong foundation. What is new is the ambition to quantify nature-related exposure consistently across portfolios and connect it more explicitly to financial outcomes.

As Berkey put it, the task is to build on banks’ existing knowledge and policies, not to assume the industry is beginning from scratch.

3. Start broad, then add the detail that changes decisions

A practical nature-risk assessment can be built in layers.

The first is a top-down view. Sector- and country-level data can identify where a portfolio is most likely to be exposed to material nature-related impacts and dependencies. Tools such as ENCORE can support this initial prioritisation.

The second layer brings in company-specific operational locations. Mapping mines, factories, power plants or data centres against indicators such as water stress, ecosystem condition and proximity to Key Biodiversity Areas can reveal exposures hidden by sector averages.

The third, and often most difficult, layer is the supply chain. For many food, agriculture and consumer-goods businesses, the greatest exposure lies upstream, where crops are grown or raw materials are extracted. Understanding which commodities a company depends on, where they are sourced and the pressures affecting those locations is critical to assessing the real risk.

This distinction matters. The location of a mine or power plant may be identifiable, making site-level analysis relatively tractable. A consumer-goods company may depend on thousands of farms and intermediaries across opaque supply chains.

The financial consequences can nevertheless be significant. The webinar discussed how flooding at a Swiss aluminium supplier disrupted Porsche’s production, contributing to a reduction in its expected output of up to 10,000 vehicles and an immediate fall in its share price. The episode shows how a local physical event can travel through a concentrated supply chain and become financially material several steps downstream.

The aim is therefore not simply to create a more detailed heatmap. It is to find the specific dependencies and pressure points that could affect a company’s costs, revenues, productive capacity or creditworthiness.

4. Focus on materiality, and maintain a high bar for evidence

Nature data can become overwhelming quickly. A company may interact with dozens of ecosystem services and environmental pressures across its operations and value chain. For a financial institution covering hundreds or thousands of counterparties, attempting to pursue every possible issue is neither realistic nor useful.

The better question is: what are the two or three nature-related issues that matter most for this company, in this location, and what should it do about them?

That requires robust, decision-useful evidence. Broad assumptions can produce false positives as well as missed risks. Not all data centres, for example, have the same water requirements; technology and cooling systems can radically change their local impact. Similarly, wildfire exposure varies substantially between individual forestry assets.

Good nature intelligence should help institutions distinguish genuine, material exposure from a compelling headline. That protects against both underestimating risk and unnecessarily restricting capital.

5. The objective is action, not measurement

Regulation is accelerating the need for better analysis. FINMA, the European Central Bank and the European Banking Authority are among the regulators pushing financial institutions beyond climate-only approaches. Disclosure frameworks such as TNFD and corporate reporting under the CSRD can also improve the information available to banks and investors.

But compliance and disclosure are not the endpoint.

The real value of nature-risk analysis is its ability to improve decisions: which clients require deeper diligence, which supply-chain exposures merit investigation, and where engagement can encourage a credible transition.

Financial institutions can learn from climate here. The climate agenda spent years focused on measurement and disclosure before transition planning became central. Nature has an opportunity to move faster - to use analysis from the outset to ask how companies are managing their most material dependencies and impacts.

That engagement can be powerful. Banks and investors can encourage companies to diversify vulnerable sourcing, improve production practices, invest in resilience or adopt more sustainable inputs. A small number of consistent, evidence-based asks will be more effective than many institutions presenting clients with different and sprawling requirements.

From risk to opportunity

The same analysis that reveals vulnerability can also point towards investment.

For Standard Chartered, the commercial case for sustainability combines avoiding losses with generating new revenue. The bank has generated $1 billion in sustainable finance income over four years, which represents almost 10% of its corporate and investment banking revenue, and is exploring how more nature-related opportunities can reach commercial scale.

The most promising opportunities are often found where nature risk is already creating a pressing business need: water management in stressed catchments; regenerative agriculture; more heat-, drought- or pest-resilient crops; alternative proteins; and technologies that reduce pressure on scarce materials and ecosystems.

Nature opportunities will not always resemble the climate transition. Rather than a handful of technologies deployed at enormous scale, they may involve many more targeted interventions embedded within particular sectors and supply chains. Nor will every necessary intervention produce a conventional commercial return. Blended finance and creative financial structures will remain important for making conservation and restoration projects investable.

For companies, the strongest business cases often begin with a core dependency. A beverage company invests in water security; a confectionery company invests in resilient cocoa supply; a textiles or beauty company invests in the natural fibres on which its products depend. The return may come through higher revenues, lower costs, reduced risk, improved access to capital—or a combination of all four.

For financial institutions, this brings the risk and opportunity agendas together. Better nature intelligence can help protect portfolios from downside risk while identifying the companies and solutions best positioned to prosper as environmental pressures intensify.

Get started, then improve

Nature is more complex than climate in important ways. Data gaps remain across every stage of the chain - from measuring changes in ecosystems, to mapping company activities and supply chains, to translating physical pressures into financial effects.

But complexity is not a reason to wait. Financial institutions can begin with sector and geography, add asset- and supply-chain-level detail where it is material, and improve their analysis as data and methods mature.

The institutions that make progress will be those that combine scientific rigour with pragmatism: starting with the best available evidence, concentrating on the risks that can change decisions, and using those insights to engage clients and direct capital towards greater resilience.

Watch the full webinar to hear the discussion with Marisa Drew of Standard Chartered, Judson Berkey of UBS and Sebastian Leape of Natcap.