TNFD for Banks: Loan Portfolios, Borrower Locations and Nature-Related Credit Risk

Figure 1. Show the nature-to-credit pathway.

A sector heatmap shows where nature-related dependencies and impacts are more likely. It does not show whether a borrower is exposed, vulnerable, well managed or financially affected. A location overlay shows that an asset may be in a sensitive context. It does not determine whether the activity creates a pressure, depends on the ecosystem service or is likely to default. The bank needs both exposure screening and a causal credit pathway.

A credible scope is selected for decision value. A bank might begin with corporate lending and project finance in agriculture, food, mining, utilities and construction materials across priority countries. It should state the portfolio measure, exposure covered, exclusions, data availability, reasons for selection and expansion roadmap. Different methods may be needed for consumer, sovereign, cash, derivatives or off-balance-sheet activities.

Sector. Map internal industry codes to TNFD reference sectors and activity tools; retain crosswalks.

Geography. Distinguish headquarters, registered address, operating site, project, concession and collateral location.

Exposure. Use a governed lending measure and reconcile it to portfolio systems.

Concentration. Identify clusters by sector, country, basin, biome, commodity, collateral and ecosystem service.

Data gaps. Report the proportion with exact, approximate, country-only and missing locations.

Location requests should be proportionate to risk. Project finance and asset-backed lending may justify exact coordinates or polygons at onboarding. For large corporates, the bank may request material operating sites and commodity regions. Collateral analysis should consider legal use, insurability, productivity, restoration obligations, liquidity and value. A property near a wetland, an irrigated farm and a mine near a KBA require different evidence and specialists.

Which activities, commodities, sites and supply chains create the nature interface?

Which ecosystem services are operationally critical and what substitutes exist?

What permits, land rights, water rights and closure/restoration obligations apply?

Which sensitive locations and affected communities are relevant?

What incidents, grievances, fines or litigation exist?

What site controls, targets, capex and transition/adaptation actions are funded?

How could the issue affect volumes, costs, downtime, collateral and refinancing?

What data can be monitored contractually?

FI.C0.0 represents exposure to a defined set of sectors considered to have material nature-related dependencies and impacts. FI.C0.1 represents exposure to companies with assets or activities in sensitive locations. For banks, the guidance expresses these as an amount or percentage of lending volume. TNFD states that these demonstrate an initial exposure assessment and are not measures of the bank’s nature-related risk or opportunity by themselves.

TNFD’s portfolio discussion paper explores financed impact-driver and response metrics and acknowledges data gaps, attribution complexity and methodological inconsistency. It is a discussion paper, not a new mandatory metric. A bank can pilot such information if useful, but should state coverage, allocation, assumptions and double-counting limits.

A regional bank selects agriculture, food, mining and utilities within corporate lending and project finance across five countries, covering 42% of drawn corporate lending. It has exact project coordinates for most project finance but only headquarters addresses for many corporate groups. The bank requests material site and collateral locations from the top 80 exposures. Detailed analysis identifies irrigation restrictions and watershed degradation as material for three borrowers; several sensitive-location matches are false positives because the financed activity sits elsewhere. Credit files are updated with covenants, capex monitoring and annual location data.

Using registered offices as operating locations. This can create misleading location results.

Moving a sector score directly into a rating notch. The borrower-effect and financial pathway are missing.

Ignoring collateral. Nature restrictions and restoration liabilities can affect value and recovery.

Treating no data as no risk. Missing data is a due-diligence issue.

Calling FI.C0.0/FI.C0.1 comprehensive risk metrics. They are initial exposure indicators.

Presenting discussion-paper metrics as mandatory. Emerging methods need visible status and limitations.

Figure 2. Show first-year screening and data escalation.

Prerequisite: TNFD Explained - Recommendations, LEAP, DIROs and how to start.

Apply next: TNFD LEAP Approach - a step-by-step guide.

Evidence: Geospatial Data for TNFD - coordinates, maps, data quality and confidentiality.

Advanced: TNFD metrics, targets and the limits of composite biodiversity scores.