Integration of biodiversity into credit scoring and risk assessment procedures of private financial institutions (BioScore)

Abstract:

Due to their importance in providing ecosystem services, biodiversity loss poses a significant risk to economic stability. However, it has so far received little attention in the financial sector. Suitable concepts for the systematic recording and integration of biodiversity-related risks and their associated costs are currently lacking in risk management within the lending process. As a result, relevant biodiversity-related environmental risks for loan portfolios remain unaddressed, while capital flows continue to be directed towards activities that harm biodiversity. Consequently, the enormous potential of financial institutions to counteract this trend as capital intermediaries remains largely untapped.

BioScore addresses this issue and aims to systematically record biodiversity-related risks, integrate them methodically, and embed them in a practically applicable way into lending decision-making processes. To this end, existing procedures are analyzed using qualitative methods, an interdisciplinary risk management model is developed, and this model is validated through dialogue with stakeholders from politics, practice, academia, and civil society. The research project implements a participatory approach to initiate the transfer between economists, finance experts, business administrators and natural scientists, which is considered key to better evaluating existing biodiversity-related data and integrating it into decision-making processes.

Project management:

The project coordination is handled by TU Dresden: Research Group Sustainability and Biodiversity Management (Prof. Dr. Remmer Sassen)

Scientific processing:

Dr. Leyla Azizi