Seeing institutions’ exposure to natural capital risk

Attempting to link environmental change and its consequences for the economy is a difficult art, but the Natural Capital Finance Alliance (NCFA) has launched a new web-based tool, called ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure) to aid global banks, investors and insurance firms assess the risks that environmental degradation, such as the pollution of oceans or destruction of forests, causes for financial institutions.

An assessment of the FTSE 100 using information in ENCORE found that in 13 of the 18 sectors that make up the index, a total of $1.6tr in net market capitalisation is associated with production processes that have high (or very high) material dependence on nature. Examples of such high economic dependencies include the harvesting of cereals and its reliance on pollination, or metal processing and its reliance on groundwater provision.

The ENCORE tool is managed by the NCFA, a collaboration between the UN Environment Finance Initiative (UNEP FI) and Global Canopy, in partnership with UN Environment World Conservation Monitoring Centre. YES Bank, First Rand and VicSuper are among the financial institutions supporting the tool at the launch. Other NCFA signatories or institutions involved in the creation of ENCORE include IFC, UBS, National Australia Bank, Citi, UniCredit and CDC Biodiversite.

Namita Vikas, chairperson of NCFA and group president and global head, Climate Strategy and Responsible Banking, YES BANK said: “Financial institutions globally need to gear up to face the impact of accelerating environmental change. In order to safeguard their operations and portfolios, financial institutions will require robust mechanisms to explore, identify and manage environmental risks. The launch of ENCORE is a key step towards this, and will not only enable financial institutions to easily identify and mitigate the impact of natural capital risks but also help to mainstream natural capital considerations in decision-making processes.”

The ENCORE tool is free to accessible here.

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