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Natural capital risks to finance - report and portfolio risk tool

Source(s):  Natural Capital Finance Alliance

  • Guidance report will help banks, investors and insurers to assess their impacts and dependencies on natural capital such as clean air and oceans.
  • UK launch follows IPCC report earlier this week, which suggested an urgent need for business to understand its impacts and dependencies on natural capital.
  • Report is forerunner to major ‘Natural Capital Explorer’ tool from Natural Capital Finance Alliance this November, set to ‘unlock’ natural capital integration for financial institutions.

The Natural Capital Finance Alliance (NCFA), together with the Natural Capital Coalition and VBDO, today hosted the UK launch of a ground-breaking guide to help financial institutions understand and assess their reliance on ‘natural capital’ – i.e. the clean air, oceans, ecosystems and minerals that most of our goods and services depend on.

The report, ‘Connecting Finance and Natural Capital: A Supplement to the Natural Capital Protocol’ was launched at an event hosted by ICAEW in London.

The supplement was published against the backdrop of the latest Special Report from the IPCC (Intergovernmental Panel on Climate Change) which warned of the negative consequences to the natural systems that underpin the global economy, given the current rate of global warming. This creates significant consequences for many businesses, and those who finance or insure them.

Niki Mardas, NCFA Steering Committee member, who spoke at today’s ICAEW event said:

“The latest report from the IPCC paints a worrying picture of climate change. It shows that 2°C of warming poses enormous and irreversible threats to coral reefs, insects, plant life and marine ecosystems. It also increases the likelihood of natural capital-related risks such as forest fires, extreme weather events and the spread of invasive species.”

“But the report also concludes that a 1.5° world is possible if we act quickly and undertake rapid and far-reaching transitions in energy, land, urban, infrastructure and industrial systems. The implications of this for financial institutions are monumental, with entire industries needing to change business models and rethink their relationship with natural capital."

“The supplement launched today is an important step to helping financial institutions start the journey of measuring and valuing natural capital risks and opportunities”.

Today’s guidance is the first of two major launches this year to help financial institutions understand natural capital risk. In November, NCFA will launch its Natural Capital Explorer (NCE). The Explorer will be the world's first comprehensive knowledge base and tool enabling banks, asset managers and insurers to screen their portfolios for natural capital risks. The tool will deliver a simple 'heat map' to financial institutions, detailing how companies they lend to or invest in, across 167 business sectors, depend on nature to enable their production processes, what the associated risks may be, and the data that can be used to qualify and quantify risk exposure at a global and national-level.

Philippa Kelly, Head of Financial Services at ICAEW added: “Following launches across the world, we look forward to exploring how financial institutions are beginning to integrate natural capital into their decision-making at our UK launch.”

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  • Publication date 12 Oct 2018

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