Science-Based Targets for Nature: Implications for the Financial Industry

Coauthored by Agnes Bosch van Rosenthal and Nagadarsan Suresh

Nature is becoming increasingly important for financial institutions (FIs) as environmental degradation poses significant risks to economic stability and long-term investment returns. The release of the Science Based Target Network’s corporate science-based targets (SBTs) for nature is a big step forward for organizations looking to tackle these challenges, enabling them to assess their environmental impacts and set targets to reduce harm and enhance positive outcomes for nature.

The SBTs for nature extend the scope of the Science Based Targets initiative (SBTi) beyond climate change to a broader range of ecological concerns including biodiversity loss, water and land use, and ocean health. By integrating these targets, FIs can holistically manage their environmental impact to drive sustainable investment, lending, and insurance practices.

The Importance of SBTs for Nature for Financial Institutions

FIs should embrace SBTs for nature for several key reasons:

• Risk Management: Environmental degradation poses significant risks to financial stability. Multiple analyses have shown that more than half of the global economy depends moderately to highly on nature. To ensure long-term resilience, FIs must assess, manage, and disclose a wider range of environmental risks, including those related to biodiversity. Setting SBTs for nature enables FIs to identify and manage these risks more effectively.
• Regulatory Compliance: Governments are increasingly focused on nature and biodiversity. The recent adoption of the Global Biodiversity Framework and the inclusion of biodiversity in reporting regulations like the Corporate Sustainability Reporting Directive highlight the growing regulatory pressure on FIs to address nature-related risks. SBTs for nature can help FIs stay ahead of regulatory requirements and avoid potential penalties.
• Market Opportunities: Addressing environmental issues such as biodiversity loss can open new market opportunities. FIs that align with SBTs for nature are better positioned to prioritize investments in companies and projects that contribute to biodiversity conservation and restoration, allowing them to capitalize on emerging markets and innovative financial products. This shift can drive capital toward nature-positive technologies, fostering a more resilient economy.

The Process of Setting SBTs for Nature

The process of setting SBTs for nature is divided into five steps.

SBTs for Nature: Target-Setting Process

(Source: Guidehouse/Science Based Targets Network)

1. Assess: The first step involves a materiality assessment and value chain analysis to understand the impact of an FI’s activities on nature. All economic activities have an impact on nature—companies in the agricultural sector, for example, extract natural resources by consuming freshwater to water their crops. But not all impacts on nature are equally significant—using freshwater in areas with water shortages puts a bigger strain on the ecosystem than the same usage would in areas that do not experience water scarcity. An analysis therefore helps determine which environmental impacts an FI should focus its target-setting efforts on.
2. Prioritize: The second step is identifying the areas where an FI’s actions can have the most significant overall impact. This involves considering the effects of the FI’s operations and value chain on the surrounding landscapes and prioritizing actions accordingly. As a result, FIs will know which locations and economic activities to include in their target boundaries and where to act first.
3. Set Targets: The next step is setting, validating, and disclosing an FI’s SBTs based on the prioritized areas. This includes setting targets for freshwater and land (climate targets are set through SBTi, and ocean targets will become available in 2025). Freshwater targets address water use and pollution—the two key drivers of nature loss. Land targets focus on protecting natural ecosystems, reducing land footprints, and improving ecological conditions in key landscapes.
4. Act: This step involves implementing actions to meet the set targets. This pushes FIs to adopt a forward-looking approach and a concrete action plan. The interactive Action Framework AR3T (Avoid, Reduce, Regenerate, Restore, and Transform) shows the types of actions FIs can take when implementing SBTs for nature—for example, avoiding pollutants and chemicals in farming, reducing water use by upgrading irrigation systems, supporting reforestation, increasing supply chain transparency, and collaborating with suppliers to ensure deforestation-free products across the value chain.
5. Track: The final step focuses on measuring progress toward the targets, reporting on this progress, and verifying the accuracy of the targets over time. Tracking is critical for all five steps and should be integrated throughout to ensure accountability and integrity.

The Next Steps to Adopt SBTs for Nature

SBTs for nature represent a significant opportunity for FIs to mitigate environmental risks and drive nature-positive outcomes. Not only does setting SBTs for nature help FIs stay ahead of regulatory requirements, but it also enables them to identify and manage nature-related risks more effectively. To begin, FIs should assess the impacts of their activities on nature, focusing on those areas where they can have the most impact. Through expertise in natural capital valuation and ecosystem services, Guidehouse helps FIs assess nature-related risks, set actionable targets, and integrate SBTs for nature into their decision-making processes. By embracing SBTs for nature, FIs can drive meaningful environmental change and strengthen resilience and long-term growth.