Pricing nature across borders: global banks’ response to nature-linked financial policies

A growing body of evidence indicates that biodiversity degradation has an economically significant impact on financial systems. Yet while recent years have seen a rapid expansion of nature-related financial policies (NRFPs) in global banks’ home jurisdictions, the international impact and potential unintended consequences of these policies remain unclear. This new brief from the Land and Ocean series explores these dynamics by focusing on whether and how NRFPs affect cross-border lending conditions.

Global banks’ activities in Colombia provide an ideal setting in which to assess the impact of domestic policy measures on transnational environmental risks. One of the world’s 17 megadiverse nations, Colombia has a small, open economy that is relatively exposed to changes in global financial conditions. Trends in bank lending to Colombian firms suggest that markets are beginning to factor biodiversity effects into asset prices, lowering the valuations of companies that harm nature and raising their external financing costs. This has at least three major implications for how policymakers design and coordinate NRFPs in an interconnected global financial system.

Recommendations

• Domestic supervisors could improve their situational awareness by systematically tracking NRFP intensity in banks’ home countries and incorporating it into cross-border surveillance dashboards.
• Standardised biodiversity disclosures that inform the decision-making of cross-border borrowers could reduce information premia and support more efficient risk pricing.
• Targeted technical assistance for firms in biodiversity-exposed sectors could help lower financing costs by improving disclosures’ quality and comparability.