Regulators need to step up oversight of banks’ environmental footprints as loss of natural capital exacerbates the impact of climate change, according to the Network for Greening the Financial System.

The NFGS, created in 2017 to advise central banks and regulators, said financial firms face increased risks — including from litigation — as human activity pushes the planet closer to environmental tipping points. The recommendations from the NFGS come just days after the European Central Bank warned that the transition to a carbon-free future needs to be sped up, failing which financial losses will mount.

“Nature degradation is a macro-economical threat that central banks and supervisors have to take into account in the exercise of their mandate,” Emmanuelle Assouan, co-chair of NGFS’s biodiversity loss taskforce and director of financial stability at Banque de France, said in a statement.

The NGFS says it’s focusing on developing a common understanding of key concepts around nature-related risks for banking supervisors to use, with specific guidance on analyzing and managing those risks still under development. They include stranded assets, interruptions to supply chains, shocks to trade and capital flows, and lawsuits.

“Litigation risks can arise from a variety of factors, including liability claims, policy and regulatory changes, and misconduct,” the report warned.

The number of climate lawsuits rose to 2,341 as of May from 190 a year earlier, according to the Grantham Research Institute on Climate Change and the Environment.

In separate reports, the NGFS last week laid out a series of actions that supervisors can take to minimize risks from climate litigation, noting that the “importance of this risk will continue to increase” particularly as countries and investors demand greater disclosure around climate and nature.

Last month, the United Nations’ human rights and transnational corporates working group said it was investigating allegations of human rights violations tied to fossil-fuel induced climate change by Saudi Aramco and included the company’s banks in its probe. And in France, BNP Paribas has been named in a lawsuit over its financing of the fossil fuel industry.

Meanwhile, the global Taskforce on Nature-related Financial Disclosures will unveil its recommendations later this month. At the same time, the European Banking Authority is reviewing whether the current framework for regulating the industry needs updating to address the environmental risks banks face, including capital requirements. A final report is expected within weeks.

This article was provided by Bloomberg News.