Financial institutions (FIs) are looking to better understand the natural capital risks and opportunities associated with their direct operations, as well as their investment, lending and insurance portfolios. The Natural Capital Coalition, the Natural Capital Finance Alliance (NCFA) (formerly the Natural Capital Declaration), and the Dutch Association of Investors for Sustainable Development (VBDO), have partnered to jointly produce a Finance Sector Supplement (hereafter the “Supplement”) to the Natural Capital Protocol.
The Natural Capital Protocol, released in July 2016, is a decision making framework that allows organizations to identify, measure and value their direct and indirect impacts and dependencies on natural capital. The Supplement will provide the guidance and insight required for FIs to integrate natural capital considerations into all financial products and services; including loans, investments and insurance policies. The Supplement will harmonize existing work, including the VBDO guide, the NCFA financial sector Roadmap, and the work of NCFA member-led Working Groups. In doing so, the Supplement will provide FIs with the most current knowledge and tools to focus on portfolio impacts and dependencies on natural capital, inform risk appetite decisions at an industry and country level, and inform active ownership decision making and impact investing, alongside product and service opportunities.
By applying the approaches and recommendations contained in the Supplement, the finance sector has the potential to increase its resilience when faced with long-term degradation of natural resources, and the increasing incidence of extreme natural events, while providing co-benefits to biodiversity and the environment. In developing the Finance Sector Supplement to the Natural Capital Protocol, the three organisations – (the Coalition, NCFA and VBDO) – will work collaboratively, utilising the expertise of FIs and other key relevant organisations working in this space. This will include public sector knowledge on accounting for natural capital, e.g. through WAVES and UN SEEA, as well as input from the NCFA’s 45 FI Signatories, the 200+ signatories to the UNEP Finance Initiative, and the wider FI community, convened through the Natural Capital Coalition and VBDO. More systematic consideration of natural resource use and environmental impacts by the financial sector can also help to catalyse its role in contributing to the transition to a green economy and implementing the Sustainable Development Goals (SDGs), as well as other national and international policy objectives.
A briefing paper will be presented at UNEP FI’s 2016 Global Roundtable (25th-26th October in Dubai), where a consultation on the structure, content and proposed applications of the Supplement will be launched. The launch of the final Finance Sector Supplement is planned for September 2017.
Angélique Laskewitz, Executive Director of VBDO, said: “The Finance Sector Supplement will be a critical tool in order to engage financial institutions with natural capital. The Supplement will provide invaluable guidance and insight into how investors and providers of other financial services can drive better performance by understanding how natural capital can impact on financial markets.”.