Just days after the French and UK central banks issued an urgent warning that climate change constitutes an existential threat to the financial system, the Natural Capital Finance Alliance (NCFA) has launched analysis based on its ground-breaking ENCORE tool. The report analyses the FTSE All-Share Index to see how dependent UK-listed companies are on natural capital such as water, clean air and biodiversity.

The analysis shows that 74% of the Index sectors are potentially highly or very highly dependent on natural capital, with four of the five largest sectors – oil and gas, personal and household goods, industrials and health care – all potentially highly dependent.

The analysis builds on global launches of web-based tool ENCORE and a step-by-step guide for banks to assess natural capital risk, produced in association with PwC. As part of the Advancing Environmental Risk Management (AERM) project funded by Swiss State Secretariat for Economic Affairs (SECO) and the MAVA Foundation, ENCORE helps global banks to better predict how the pollution of oceans or destruction of forests, for example, will affect their financial future.

The Natural Capital Finance Alliance is a group of financial institutions who are working together to integrate natural capital considerations into their risk management in order to reduce financial risks and help to prevent further destruction of vital natural capital.

Jon Williams, sustainability and climate change partner at PwC UK, said:

“Our work with NCFA and its partners makes a further and material advance in environmental and social risk management in banks. The report provides practical guidance and tools for managing natural capital risks, present in many banking portfolios but often hard to identify, assess and mitigate. By piloting the approach with the banks involved in this project, we believe this provides a tested risk management framework that can be adopted by other financial institutions. Given the increasing erosion of natural capital and the increasing risks that businesses and their financiers face, this report is a timely addition to the tools available to risk managers.”

 

Andrew W. Mitchell, Co-Founder Natural Capital Finance Alliance, said:

“We cannot win the battle for sustainability without changing the movement of money. Incentives to maintain natural capital must outweigh incentives to deplete it, or climate change and the destruction of nature will gradually destabilise our global economy. ENCORE provides a methodology to help develop a new ‘Financial Sector Framework for Natural Capital’. This will encourage the world’s financial institutions to understand and to report on their impacts and dependencies, beyond just the atmosphere and carbon, to the wider natural world, upon which we all depend.”

 

Liliana de Sá Kirchknopf, Head of Private Sector Development Division, State Secretariat for Economic Affairs in Switzerland (SECO), said:

“The degradation of natural ecosystems poses a material threat to future economic growth. Until now, the financial community was not able to systematically assess and manage such risks. That is changing thanks to our collaboration with the NCFA to create a natural capital framework for financial institutions.  Practical tools like ENCORE define the link between environmental change and economic consequences, and investors, banks and insurance providers (or “market players”) are  empowered to make sustainable financing decisions.”

About NCFA

The Natural Capital Finance Alliance (NCFA) is a finance sector-led initiative, providing expertise, information and tools on material aspects of natural capital for financial institutions. It works to support these institutions in integrating natural capital considerations into their risk management processes and products as well as helping them to discover new opportunities. The NCFA secretariat is run jointly by the UN Environment Finance Initiative and Global Canopy.

About Global Canopy

Global Canopy is an innovative environmental organisation that targets the market forces destroying tropical forests. Our mission is to accelerate progress towards a deforestation-free global economy – through improved transparency, innovative finance and strategic communications. Since 2001, we have catalysed new thinking and action by leading governments, companies and investors worldwide. www.globalcanopy.org.