Assessing Nature-Related Issues in Sovereign Debt Investment

Over the past several years, the financial services industry has made great strides to account for the symbiotic relationship between economic activities and nature, mirrored by political, corporate, and societal efforts to address unprecedented nature loss.

The Taskforce on Nature-related Financial Disclosures (TNFD) is one example of these efforts, with its final recommendations and additional guidance released in September 2023.

Among the range of widely used financial instruments, sovereign debt stands out as the bedrock upon which market participants depend for a ‘reference interest rate’ -  frequently used to link payments in financial contracts to standard money market interest rates.

The importance of this asset class cannot be overstated, both for the functioning of the global economy and capital markets and as a conduit for capital to flow from advanced economies (AEs) to emerging and developing economies (EMDEs).

For these reasons, building on the TNFD’s final framework and recommendations, NatureFinance has developed tailored guidance for financial institutions regarding the identification and assessment of nature-related dependencies, impacts, risks, and opportunities stemming from their sovereign debt exposures.

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