Examining the relationship between natural capital indicators and downside risk. Recalibrating credit and investment risk modelling to assess natural capital risk. Incorporating science based information and environmental expertise. Transferring technical
10 NCD
| UNEP FI
| GCP
Findings from the evaluation of research providers and consultancies:
• Only 26 of the 66 potential research providers evaluated have detailed methodologies
available publicly or upon request to ofer environmental risk-related research services or some capacity to analyse company performance on natural capital factors.
• Eight of the 26 organisations evaluated have quantitative capabilities with natural capital
datasets. •
The most common natural capital indicators on which research providers and consultants focus to assess corporate performance are GHG emissions, water risks, climate risks
and air pollution .
Few methodologies focus on indicators like agricultural production and over-exploitation risks, forestry and land use, and wider pollution impacts. One reason for
this could be that these indicators require more sophisticated analytical tools and datasets such as geographic information systems, and most environmental, social and governance
ESG research providers have yet to fully incorporate these in their analyses. •
Natural capital datasets can enhance the investment process and unveil both enhanced return and risk reduction opportunities.
Framework for methodological development
The NCD aims to help scale up the contribution of the inancial sector in achieving sustainable development objectives. Part 3 of the study provides a conceptual framework for the
implementation of the further stages of the project to develop efective natural capital-adjusted inancial risk assessments.
This working paper will inform the work programme to develop the necessary methodologies and tools to evaluate how much of the underlying value of a inancial product – such as a
corporate loan, private equity, stocks, corporate bonds – is inancially afected by natural resource and environmental issues to determine portfolio exposure. The NCD project to build
capacity to evaluate natural capital risk at a portfolio level and incorporate relevant factors into credit risk analysis will utilise the collective expertise of its signatories as well as supporters to
ensure the delivery of customised approaches for diferent inancial instruments, e.g. corporate inance, equities and ixed income. The outcomes will enable inancial institutions to monitor
interactions between corporate use of natural resources, environmental impacts and credit risk in order to relect natural capital risk in measures of corporate performance and value.
The NCD’s approach to directly integrate natural capital considerations into credit risk analysis includes: