Biodiversity, Ecosystem Services and the Banking Industry - Exploring the Scale of Interdependency and Potential Risks
(2021) In IIIEE Master Thesis IMEM01 20211The International Institute for Industrial Environmental Economics
- Abstract
- Biodiversity loss and ecosystem service (BES) degradation are translating into different risks for financial institutions which are not accounted for in a sufficient and adequate manner. Being a topic outside its core expertise and foci, the financial sector is lacking assessment methodologies for BES risks. Therefore, the European financial sector is lacking up-to-date estimations on the scale of interdependency between BES risks and investments of banks.
The thesis at hand aims to address this knowledge gap by estimating the value at risk due to BES dependency and related impacts of equity holding portfolios across European banks and by identifying the main sources of uncertainty when estimating the value at risk.
From a... (More) - Biodiversity loss and ecosystem service (BES) degradation are translating into different risks for financial institutions which are not accounted for in a sufficient and adequate manner. Being a topic outside its core expertise and foci, the financial sector is lacking assessment methodologies for BES risks. Therefore, the European financial sector is lacking up-to-date estimations on the scale of interdependency between BES risks and investments of banks.
The thesis at hand aims to address this knowledge gap by estimating the value at risk due to BES dependency and related impacts of equity holding portfolios across European banks and by identifying the main sources of uncertainty when estimating the value at risk.
From a methodological point of view, the thesis used the ORBIS and EIKON Refinitiv databases to calculate equity holding portfolios for different banks. This was matched with BES dependency and impact risk materiality ratings on GICS subindustry level extracted from the ENCORE database. In addition, the thesis used different case studies from existing BES risk assessments in the EU financial sector.
The findings show that the largest EU banks have extensive financial operations that either highly depend or have high impacts on BES. The average share at risk lies at 27.21% (or USD 48.48 billion) for BES dependency and 23.55% (or USD 41.99 billion) for BES impact of the equity portfolio. Major sources of uncertainty of the analysis are missing or incorrect data, the broad materiality rating and the final risk calculation.
From a methodological perspective, several important elements for a sufficient BES risk assessment methodology are identified in the thesis. The most important ones are the completeness of the assessment (taking into account location, all environmental pressures and all asset categories) and standard metrics accompanied by a strong regulatory framework. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9060460
- author
- Heintze, Jan-Niklas LU
- supervisor
-
- Luis Mundaca LU
- organization
- course
- IMEM01 20211
- year
- 2021
- type
- H2 - Master's Degree (Two Years)
- subject
- keywords
- BES, Ecosystem Services, Biodiversity loss, Banks, Risk assessment, Equity portfolio
- publication/series
- IIIEE Master Thesis
- report number
- 2021.30
- ISSN
- 1401-9191
- language
- English
- id
- 9060460
- date added to LUP
- 2021-07-05 14:40:18
- date last changed
- 2021-07-05 14:40:18
@misc{9060460,
abstract = {{Biodiversity loss and ecosystem service (BES) degradation are translating into different risks for financial institutions which are not accounted for in a sufficient and adequate manner. Being a topic outside its core expertise and foci, the financial sector is lacking assessment methodologies for BES risks. Therefore, the European financial sector is lacking up-to-date estimations on the scale of interdependency between BES risks and investments of banks.
The thesis at hand aims to address this knowledge gap by estimating the value at risk due to BES dependency and related impacts of equity holding portfolios across European banks and by identifying the main sources of uncertainty when estimating the value at risk.
From a methodological point of view, the thesis used the ORBIS and EIKON Refinitiv databases to calculate equity holding portfolios for different banks. This was matched with BES dependency and impact risk materiality ratings on GICS subindustry level extracted from the ENCORE database. In addition, the thesis used different case studies from existing BES risk assessments in the EU financial sector.
The findings show that the largest EU banks have extensive financial operations that either highly depend or have high impacts on BES. The average share at risk lies at 27.21% (or USD 48.48 billion) for BES dependency and 23.55% (or USD 41.99 billion) for BES impact of the equity portfolio. Major sources of uncertainty of the analysis are missing or incorrect data, the broad materiality rating and the final risk calculation.
From a methodological perspective, several important elements for a sufficient BES risk assessment methodology are identified in the thesis. The most important ones are the completeness of the assessment (taking into account location, all environmental pressures and all asset categories) and standard metrics accompanied by a strong regulatory framework.}},
author = {{Heintze, Jan-Niklas}},
issn = {{1401-9191}},
language = {{eng}},
note = {{Student Paper}},
series = {{IIIEE Master Thesis}},
title = {{Biodiversity, Ecosystem Services and the Banking Industry - Exploring the Scale of Interdependency and Potential Risks}},
year = {{2021}},
}