WHAT IS NATURAL CAPITAL:
WHY IT IS IMPORTANT TO FINANCE
Natural capital underpins our societies, economies and institutions and regulates the environmental conditions that enable human life.
Put simply, it is the food we eat, the water we drink, the plants that provide us with materials with which to build, or medicines to keep us healthy. Natural capital is the forests that suck millions of tonnes of carbon from the air and lock it away, that help to regulate local weather patterns and the water cycle.
Natural capital is the insects that pollinate our crops and the healthy soils that allow them to grow.
The sustainability of financial returns relies on the sustainable use of natural capital and therefore there is an urgent need for financial institutions to manage the natural capital risks and dependencies associated with their activities and products.
WHAT IS THE NATURAL CAPITAL FINANCE ALLIANCE?
The Natural Capital Declaration was launched at the UN Conference on Sustainable Development (Rio+20) in 2012. Convened by the UN Environment Programme Finance Initiative and Global Canopy, the Natural Capital Finance Alliance (NCFA) is a collaboration with the finance sector to lead the integration of natural capital considerations into financial decision-making.
It drives innovation and develops the practical tools that enable financial institutions to better understand risks, pursue opportunities, and establish the foundations for resilient long-term economic growth.
The Alliance is supported by over 75 signatories and supporters that include financial institutions and other stakeholders.
HOW DOES THE NCFA HELP?
Signatories to the Natural Capital Declaration have made the following four commitments:
to better understand the financial impacts of natural capital-related issues;
to more fully integrate these considerations into financial sector decision-making;
to account for natural capital-related assets and externalities; and
to facilitate more effective disclosure to help shareholders assess how natural capital related risks and opportunities impact value creation.
The Natural Capital Finance Alliance is developing the tools and resources necessary to support these efforts, enabling the financial sector to better understand – at both asset and portfolio level – their dependencies and impacts on natural capital. Recently released tools include:
Drought Stress Testing Tool – for financial institutions to see how incorporating drought scenarios can affect perception of risk in their loan portfolios.
WATER CREDIT RISK
Corporate Bonds Water Credit Risk Tool & Report – to integrate water stress into company credit analysis in the Beverages, Mining, and Power Utility sectors.
WATER RISK VALUATION
Bloomberg Water Risk Valuation Tool & White Paper – enabling financial institutions to incorporate water risks into company valuations across mining companies.
SOFT COMMODITY RISK
Soft Commodity Forrest-Risk Assessment Tool – an evaluation tool for banks and investors to evaluate their policies to address exposure to deforestation risk.
WHAT PEOPLE THINK OF US
As companies face increasing risks related to climate change and resource scarcity, it’s critical that we fully account for the natural capital upon which our businesses rely.
– Peter Grauer, Chairman Bloomberg
Andrew Mitchell on how Natural Capital contributes to better decision-making
How does Natural Captial contribute to better decision making?
Watch the VoxPop to be released at the World Forum in Edinburgh on 24.11.2017.
Extreme drought a major threat to banks’ loan portfolios
On World Day to Combat Desertification and Drought, we look at how the global finance sector is dependent on water.
Read the full report.