EU banks and nature-related risk management: from awareness to action

Nature degradation is increasingly recognised as a source of prudential and macro-financial risk. This has prompted regulators and banks in the EU to move beyond climate-only approaches to assess broader environmental exposures.

This report analyses the public disclosure documents that 15 EU banks made available during 2020–24. These documents include annual reports, sustainability reports and disclosures under Pillar 3 of the Basel Framework. In benchmarking how banks manage nature-related risks through the lens of the risk management process, the assessment reveals a developing approach to nature-risk mitigation but a gap between ambition and implementation.

Core findings

• EU banks’ approaches to nature-related risks have evolved gradually since 2020; conceptual framing is now clearer and coverage of nature-related issues broader.

• However, progress remains uneven, and assessments remain largely qualitative. Regulatory and supervisory expectations have driven greater recognition of physical and transition nature-related risks. Yet these risks have only been partially integrated into prudential risk frameworks.
• Governance structures and policies on nature-related risks are often high-level, while these risks are not yet embedded into banks’ decision-making. Yet the number of initiatives has expanded, particularly through sectoral, region-specific and thematic standards, exclusions, enhanced due diligence and emerging risk appetite approaches.
• Risk mitigation practices are developing, particularly through client engagement, escalation mechanisms and policy tightening in high-risk sectors and biomes, as well as selective investment in nature-positive activities.
• Monitoring and enforcement remain patchy, and the scale and effectiveness of mitigation actions are difficult to assess.
• Nevertheless, emerging practices at frontrunner banks can help peer banks, regulators and supervisors generate ideas about which further steps to take.

Recommendations

EU banks should:

• Enhance internal coherence across corporate and risk management functions. This involves aligning definitions, terminology and practices across corporate, sustainability and risk management functions, while explicitly mapping and comparing the nature-related risks identified in corporate disclosures with those assessed for prudential purposes.
• Integrate the climate–nature nexus into analytical frameworks. Banks should jointly assess climate and nature risks in these frameworks, and adopt a sectoral-level approach to assess compound climate–nature risks in elevated nature-dependent sectors, such as agriculture and real estate.
• Embed nature-related risks into strategy and internal governance practices. Banks’ strategic statements on nature-related risks need to be translated into tangible actions. Governance of nature-related risks should evolve to serve as the bridge between a bank’s overall strategy and its day-to-day risk management practices.
• Translate nature risk concepts into prudential frameworks. Banks should map nature-related risks onto prudential risk categories and integrate them into core risk management processes. They should explicitly distinguish between the prudential implications of nature-related physical and transition risks, and should integrate them into their risk assessment frameworks.
• Move from exposure mapping to financial risk assessments. Banks should not be discouraged by the absence of fully quantified risk measures for nature-related risks. Collecting, analysing and comparing relevant qualitative and quantitative information could help them develop a better understanding of nature-related risks. Good practice should move beyond high-level exposure screening to forward-looking assessments of material nature-related risks.
• Leverage existing data and enable collaboration. Banks can make meaningful progress by leveraging existing data and applying it consistently across their internal functions. Data-sharing and collaboration can improve data comparability, with siloes – not scarcity – one of the core constraints on this.
• Develop concrete nature-related policies and processes. Banks should use risk assessments as a foundation for concrete action, while refining their nature-related risk management. They should develop comprehensive risk control frameworks for nature-related risks rather than rely on exclusion policies, and should translate policy commitments into concrete constraints on risk taking.

EU regulators and supervisors should:

• Strengthen the conceptual clarity of regulatory actions. EU regulators could support a more holistic integration of nature-related risks by streamlining terminology and setting further conceptual criteria for nature risk assessments.
• Embed nature risks into supervisory actions. Supervisors could use supervisory dialogue to require institutions to demonstrate how nature-related risk drivers are linked to prudential risk categories and risk management. They could also require banks to address execution gaps, thereby strengthening market discipline linked to nature-related risks. Where gaps persist, supervisors should use their powers outlined in EU legislation.
• Treat impacts and risks as tightly coupled. Supervisors should reflect on the relationship between impacts and risks, and should account for the potential for rapid impact-to-risk transmission in their supervisory activities, asking banks to evidence how (and where) they consider such linkages.
• Provide guidance on nature-related metrics and methodologies. This guidance should consider which types of metrics and proxies are suitable for nature-related risk assessments. Meaningful assessments will require careful consideration of the decision-usefulness of metrics and engagement with the scientific community.
• Build capability and strengthen collaboration across institutions. Data access, interoperability and inter-institutional collaboration should be improved through partnerships and shared repositories tied to supervisory use cases. Effective supervision of nature-related risks will require sustained investment in supervisory capability.