1 September 2026
To the Board of Latvijas Banka
Regarding the methodology for biodiversity recommendations, material
substitutability and impact on the bioeconomy investment environment
Dear Management of Latvijas Banka,
Subject of the letter and our concerns
AS “Latvijas Finieris” supports the need to protect biological diversity and to improve the financial sector's ability to identify nature-related financial material risks. At the same time, the recommendations developed by Latvijas Banka raise a number of questions regarding the methodology’s scope, evidence base, transparency, and potential practical application in the credit risk processes of credit institutions.
In its strategic priorities, Latvijas Banka has stated that it must be a leading competence centre for the economy and financial system in Latvia, and competitive in Northern Europe, which promotes evidence-based decision-making for the sustainable development of the national economy and the stability of the financial system.
In our view, this exact standard should also be applied to the development of methodologies for financial risks related to biodiversity. Conclusions that potentially impact lending conditions, capital-intensive investments, and the competitiveness of economic sectors must be based on a transparent evidence base, comparative economic analysis, and a clearly justified link to financial materiality.
Our primary concerns are not regarding the goal of biodiversity as such. They are regarding the risk that certain economic activities are classified as “favourable” or “unfavourable” without sufficiently evaluating alternative materials, the full life cycle, the shifting of impacts between countries and sectors, and the transmission mechanism from impact on nature to actual credit risk.
Material substitutability and the need for a broader evaluation
This problem is particularly apparent in construction and the use of wood. If timber harvesting or a specific forestry technique is classified in the methodology as unfavourable to biodiversity, such a classification should not directly or indirectly result in an advantage for concrete, steel, other metals, plastic, or imported materials before the full impact of these alternatives has been compared.
Such a comparison should cover, at a minimum, raw material extraction, land use, impact on biological diversity, energy and water consumption, GHG emissions, transportation, the material's service life, reuse and recycling, biogenic carbon storage, and the end-of-life stage.
Otherwise, there is a risk of burden shifting/leakage: impacts that are visible and verifiable in Latvia may be assessed more stringently than those arising from the extraction or production of imported materials outside of Latvia. The result may not be a reduction in the overall impact, but rather its displacement to another country, industry, or stage of the supply chain.
Biodiversity impact is not automatically a credit risk
We consider it essential to clearly distinguish between three levels:
(1) the impact of a specific activity on biological diversity;
(2) the overall life cycle and sustainability assessment of a product or material;
and (3) the financially material credit risk to a credit institution.
The conclusion that a specific activity has an adverse impact on biodiversity does not, in itself, prove increased credit risk. If the recommendations are integrated into credit risk processes, it should be possible to justify the transmission chain:
economic activity → impact on biodiversity → economic consequences for the company → changes in cash flow, solvency, or asset value → credit risk for the bank.
Transparency of the methodology and trust in the process
In publicly available information, Latvijas Banka has described the general approach of the recommendations and indicated that the core of the methodology consists of a structured expert survey and consolidated expert assessment. However, in our view, the public information is currently not sufficiently detailed for a third party to fully reconstruct the expert selection, the conduct of the survey, the distribution of answers, the principles for determining consensus, and the evidence base for specific criteria.
This creates unnecessary distrust in the process, especially in a situation where the results of the recommendations may be used in the financial sector's risk assessment. We invite Latvijas Banka to be as open as possible and, provided there are no legal restrictions, to publish the principles of expert selection, the list of involved experts, survey questions, the anonymised distribution of answers, the consensus methodology, and the sources of evidence for each significant criterion.
Questions for Latvijas Banka
1. When developing the recommendations, was an analysis of alternatives and material substitution carried out, including a comparison of wood with concrete, steel, other metals, plastic, and imported materials?
2. Was the full life cycle of these alternatives and the potential for burden shifting outside of Latvia evaluated?
3. Does Latvijas Banka agree that classifying an activity as unfavourable to biodiversity is not, in itself, proof of increased credit risk?
4. What is the methodological and empirical transmission mechanism by which biodiversity criteria are linked to financially material credit risk?
5. How does Latvijas Banka intend to prevent the recommendations from being used as a simplified binary “favourable/unfavourable” filter in credit decisions?
6. Is Latvijas Banka prepared to publish the detailed methodology of the expert survey, the principles of expert selection, the list of involved experts, the anonymised distribution of answers, and the method for determining consensus?
7. Before the further entrenchment of these recommendations in the practice of credit institutions, is Latvijas Banka prepared to conduct structured consultations with the affected sectors and independently evaluate the economic and investment impact?
Context of AS “Latvijas Finieris”
These questions are asked by a company whose development is directly tied to the competitiveness of Latvia’s bioeconomy, manufacturing industry, and exports. The AS “Latvijas Finieris” group is one of Latvia's most significant high-value-added wood processing and export companies, a major employer (2,600 employees) in the manufacturing industry, and has long-term investments in production efficiency, research, product development, and technologies.
The company's export and innovation performance is also evidenced by national-level recognition – “Latvijas Finieris” has received “Export Champion” and “Innovation Champion” accolades. Currently, the group is implementing an investment programme of over 400 million euros for 2023–2027, aimed at productivity, the use of forest and non-forest land, modernisation of production, higher-value-added products, and the strengthening of international competitiveness. Investments in research, science, and development have reached an average of 10% of the value-added created over the last three years.
Therefore, the question of financial sector methodologies is not theoretical for us. It touches upon the predictability of long-term capital-intensive investments, the availability of funding, and Latvia’s ability to maintain and develop a high-value-added industry based on bio-resources.
In conclusion – investment environment and the European bioeconomy trajectory
We also wish to view these questions in the wider context of the Latvian investment environment. European Union policy currently clearly drives the bioeconomy, circular economy, and bio-resource-based materials as essential instruments for competitiveness and the green transition. The 2025 EU Bioeconomy Strategy aims to increase innovation and investment, build leading markets for bio-resource-based materials – including construction materials – and simultaneously ensure the sustainable supply of biomass and the protection of nature. The development direction of the New European Bauhaus, in turn, emphasises a sustainable, circular, and innovative construction environment.
The European Commission's circular economy approach also emphasises the need to reduce the use of high-impact materials and develop lower-impact, including renewable bio-resource-based, solutions. Thus, European policy does not demand a choice between the bioeconomy and nature protection – its goal is to achieve a competitive, circular, and sustainable bioeconomy that operates within natural boundaries.
This is precisely why we are concerned about a situation where an instrument developed by the Latvian financial supervisor, by insufficiently explaining the comparison of alternatives and financial materiality, could create the opposite signal for investors and financiers. Such an approach currently does not increase our confidence in a predictable and mutually coordinated environment for long-term investments in the Latvian bioeconomy.
We do not wish to formulate this conclusion as a confrontation with Latvijas Banka. On the contrary, we invite Latvijas Banka, through greater methodological openness, industry involvement, and an analysis of the full life cycle and substitutability, to resolve this contradiction and help create a financial environment that simultaneously supports nature protection, the competitiveness of Latvian industry, and the European Union’s strategic transition to a circular bioeconomy.
We invite the management of Latvijas Banka to an open dialogue on the mentioned issues and the improvement of the methodology before its entrenchment in the daily risk assessment practices of credit institutions.
Sincerely,
Uldis Biķis
Chairman of the Council, AS “Latvijas Finieris”
References
European Commission, Strategy for a Competitive and Sustainable EU Bioeconomy (2025); European Commission, Circular economy strategy; European Commission / EU Council, New European Bauhaus – from vision to implementation (2025-2026).
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