NCFA brochure final web
Natural Capital Finance Alliance
Finance sector leadership on natural capital
1
About Global Canopy Programme
The Global Canopy Programme (GCP) works to demonstrate the scientiic, political and business case for
safeguarding forests as natural capital that underpins water, food, energy, health and climate security
for all.
About UN Environment Finance Initiative
The UN Environment Finance Initiative (UNEP FI) is a global partnership between UN Environment and
the inancial sector. Over 200 inancial institutions, including banks, insurers and fund managers, work
with the UNEP FI to bring about systemic change in inance to support a sustainable world.
© Natural Capital Finance Alliance, October 2016
Design by: esg.solutions
2
The business case for valuing natural capital
Natural capital is deined as the world’s stocks of
natural assets, which include geology, soil, air, water
and all living things, that yield a renewable low of
goods and services and provide a range of direct
and indirect beneits to businesses and society.
Although natural capital underpins economic
prosperity and human life, it is often not adequately
valued by society.
Academic studies have estimated the total value of
global ecosystem services at over US$125 trillion
per year.1 But there has been a marked decline in
natural capital in 116 out of 140 countries, with
projections suggesting that a further 10% of global
natural capital will be eroded by 2030.2
Financial institutions, businesses, and policy-makers
are becoming increasingly cognizant of natural
capital’s role in the economy and society, and the
risks of neglecting its value. We see this in the 2015
Paris Climate Accord to limit global temperatures to
2°C above pre-industrial levels, the UN Sustainable
Development Goals, and the New York Declaration
on Forests.
The business case for understanding the
implications of this trend is two-fold:
There are currently no uniform global approaches
inancial institutions can use to systematically
consider natural capital in the provision of
investment, lending and insurance products and
services. Led by inancial institutions, the NCFA is
addressing this gap by developing models, tools
and approaches that enable the sector to better
understand – at the asset and portfolio levels—their
dependence and impact on natural capital.
In numbers...
•
The economic value of freshwater is
valued at $73.5 trillion annually3
•
Fish stocks are estimated to contribute
$2.5 trillion annually to the global
economy4
•
Forests provide more than $1.5 trillion
directly through forestry and indirectly
by providing energy, food, shelter,
medicine, soil and water conservation,
desertiication control and carbon
storage5
1. Recognising, measuring, and understanding
the dependencies and impacts of natural capital
as an integral part of the economy, rather than
as a separate function, thus providing a better
foundation to manage risks;
2. Meeting growing demand for environmentally
sustainable products and services, both from
consumers and in response to new government
regulations, which provide opportunities.
1.
UNEP Inquiry, The Financial System We Need, Aligning the Financial System with Sustainable Development, October 2015
2.
Ibid.
3.
2030 Water Resources Group, Charting our Water Future, 2009
4.
http://wwf.panda.org/wwf_news/?244770/Ocean-wealth-valued-at-US24-trillion-but-sinking-fast
5.
http://www.fao.org/sustainable-development-goals/en/;
3
Our mission
“
The NCFA is developing the tools and methodologies that inancial
institutions will all be using in 10 years’ time.
”
- Simon Connell
Senior Manager, Risk Framework and Engagement
Standard Chartered
The Natural Capital Finance Alliance (NCFA), coconvened by the UN Environment Finance Initiative
(UNEP FI) and the Global Canopy Programme (GCP),
is a growing alliance of inancial institutions that
are collaborating to understand the importance of
integrating natural capital-related considerations
into their activities as described by the Natural
Capital Declaration (NCD).6
The NCFA is working on standardised
methodologies to quantify the natural capitalrelated inputs to the economy in order to improve
decision-making in the inance sector, by addressing
four core questions:
It is our mission to advance the inancial sector in
integrating natural capital considerations within
inancial products and services, to better understand
risks, pursue opportunities, and establish the
foundation for resilient long-term economic growth
that protects nature and societies.
2. What should be taken into consideration
and what are the emerging and potential
capacities to monitor and manage natural
capital risks and opportunities?
Our models do not aim to put a price on nature.
Instead by quantifying the risks that clients or
investee companies face from their impact and
dependency on nature, we enable inancial
institutions to better understand the value nature
provides. Depletion and degradation of nature
constitute risks to growth and resilience, while
protection of nature offers opportunities for
prosperity and innovation.
“
1. How is natural capital relevant to the
inancial sector?
3. How can natural capital-related dependencies
and impacts be integrated into inancial
products, services, accounting and reporting
while safeguarding the beneits of natural
capital assets?
4. How can the inancial sector facilitate an
orderly capital shift to support the transition
needed to achieve the SDGs and UNFCCC
COP21 climate commitments?
Quantifying natural resource and environmental risk factors can
provide the inancial sector with an opportunity to make a signiicant
breakthrough in risk management practices.
”
- Julie Gorte
Senior Vice President, Sustainable Investing
Pax World
6.
The Natural Capital Declaration was launched at the UN Conference on Sustainable Development (Rio+20) in 2012. It has been signed by the CEOs of
more than 40 inancial institutions, and demonstrates their commitment to the integration of natural capital considerations into private sector reporting,
accounting and decision-making by 2020.
4
Projects
With inancial institutions’ expertise and with
the support of donors, the NCFA has developed
practical applications to manage risk and identify
opportunities across natural capital assets such as
water and forests.
Water risk management tools
Increasingly, companies are inding it challenging
to access suicient quantities of water for critical
business operations. The costs of securing
water inputs are already rising for waterintensive companies in locations vulnerable to
water shortages. Since 2011 companies have
spent more than $84 billion7 worldwide on
conserving, managing and obtaining water – a
number projected to rise as climate change and
demographic pressures affect water supply and
demand. There are also business opportunities, for
example, 55 different solutions have been identiied
to help address water availability in China that
would also result in $US 21 billion in savings8.
It is therefore critical for inancial institutions
to manage the risks associated with companies
exposed to water scarcity and to identify the
opportunities.
Bloomberg water risk valuation tool
In September 2015 Bloomberg and NCFA launched
the Water Risk Valuation Tool (WRVT), enabling users
to incorporate water risks into company valuations
across copper and gold mining companies.
The tool provides a quantitative approach to
evaluate how water risk factors can be incorporated
into company valuations using a discounted
cashlow model. The scenario directly links water
risk to revenue, while an optional social cost of
water (shadow price) can be accounted for in
operating expenses.
The tool builds on Bloomberg’s Carbon Risk
Valuation Tool and maps speciic mine asset
locations and production volumes against water
stress indicators provided by the World Resources
Institute (WRI) Aqueduct water database.
“
The tool is powerful in that it
does not require the user to
have any speciic expertise
or additional datasets – it
is ‘plug and play’ with the
Bloomberg terminal to help
users conduct research in an
easy, cost effective way while
retaining a detailed proile of
the valuation impacts due to
water risk factors.
”
- Su Gao
WRVT project manager and Senior ESG Analyst
Bloomberg
Corporate bonds water credit risk tool
The Corporate Bonds Water Credit Risk Tool
provides investors with a systematic and practical
approach to assess water risk in corporate bonds
and benchmark companies against sector peers,
taking account of projected changes in water
availability to 2040.
7.
Global Water Intelligence
8.
Charting Our Water Future: Economic Frameworks to Inform Decision-Making, McKinsey 2016
5
Projects
Developed through a partnership between the
NCFA, the Deutsche Gesellschaft für Internationale
Zusammenarbeit (GIZ) and the German Association
for Environment and Sustainability in Financial
Institutions (VfU), the Corporate Bonds Water Credit
Risk Tool enables users to integrate inancial risk
exposure to water scarcity into standard inancial
models used to assess the credit strengths of
corporations across water-intensive sectors.
The tool currently covers 24 companies and provides
a model to allow users to add their own companies
and analyses in order to address the information
gap in traditional inancial analysis. It enables
analysts to identify companies that depend heavily
on access to water in locations that are exposed to
water stress and to quantify the potential impact of
water scarcity on the company’s creditworthiness.
Forest risk management tools
Financial institutions are exposed to risks from
deforestation by inancing companies whose
activities contribute to deforestation and forest
degradation through their operations or soft
commodity supply chains.
The NCFA has developed the Soft Commodity Forestrisk Assessment (SCFA) tool with Sustainalytics
to reduce the deforestation risk caused by the
unsustainable production, trade, processing and
retail of soft commodities, especially soy, palm oil
and beef. The production of these commodities
drives deforestation and forest degradation in
tropical forests.
Financial institutions are encouraged to identify how
they can improve their own lending and investment
risk policies to systematically consider natural
capital in the credit policies of speciic sectors,
including commodities, that may have a major
impact on natural capital either directly or through
the supply chain.
6
Environmental risk management
tools
In October 2015, the NCFA launched its project on
environmental risk management with support from
the Swiss State Secretariat for Economic Affairs
(SECO) and the MAVA foundation.
The Advancing Environmental Risk Management
(AERM) project aims to catalyse sustainable
investment and lending globally by reducing risks
from environmental and natural resource pressures.
The objective is to develop methodologies and tools
to map natural capital risks across lending and
investment portfolios with the aim of embedding
them in credit risk assessments.
The project supports the development of global
methodologies to quantify risk, with additional
focus on emerging markets such as South Africa,
Indonesia, Colombia and Peru.
Join us
Demonstrate leadership
Ways to get involved
Join us to help establish the foundation for
resilient long-term economic growth.
•
Contribute expertise or provide practical
feedback on NCFA projects and tools
•
Join our network and work with supporters and
aligned organisations to drive awareness
•
Sign the Natural Capital Declaration (inancial
institutions)
•
Partner with us to encourage wider integration
of natural capital in the inance sector
•
Become a donor and support the work of the
NCFA
The NCFA provides a forum for inancial institutions
to work together and develop standardised
methodologies and structured approaches to
quantify natural capital inputs and externalities.
Supporters of the NCFA share emerging knowledge
in order to inform better decision-making and to
strengthen the capacity to embed natural capital
considerations.
“
We are proud to join the Natural Capital Declaration to deepen this
work of integrating natural capital considerations into our work.
- Courtney Lowrance
Director, Environmental and Social Risk Management
Citi
”
7
For more information visit
www.naturalcapitalinancealliance.org
or contact us at
info@naturalcapitalinancealliance.org
8
Finance sector leadership on natural capital
1
About Global Canopy Programme
The Global Canopy Programme (GCP) works to demonstrate the scientiic, political and business case for
safeguarding forests as natural capital that underpins water, food, energy, health and climate security
for all.
About UN Environment Finance Initiative
The UN Environment Finance Initiative (UNEP FI) is a global partnership between UN Environment and
the inancial sector. Over 200 inancial institutions, including banks, insurers and fund managers, work
with the UNEP FI to bring about systemic change in inance to support a sustainable world.
© Natural Capital Finance Alliance, October 2016
Design by: esg.solutions
2
The business case for valuing natural capital
Natural capital is deined as the world’s stocks of
natural assets, which include geology, soil, air, water
and all living things, that yield a renewable low of
goods and services and provide a range of direct
and indirect beneits to businesses and society.
Although natural capital underpins economic
prosperity and human life, it is often not adequately
valued by society.
Academic studies have estimated the total value of
global ecosystem services at over US$125 trillion
per year.1 But there has been a marked decline in
natural capital in 116 out of 140 countries, with
projections suggesting that a further 10% of global
natural capital will be eroded by 2030.2
Financial institutions, businesses, and policy-makers
are becoming increasingly cognizant of natural
capital’s role in the economy and society, and the
risks of neglecting its value. We see this in the 2015
Paris Climate Accord to limit global temperatures to
2°C above pre-industrial levels, the UN Sustainable
Development Goals, and the New York Declaration
on Forests.
The business case for understanding the
implications of this trend is two-fold:
There are currently no uniform global approaches
inancial institutions can use to systematically
consider natural capital in the provision of
investment, lending and insurance products and
services. Led by inancial institutions, the NCFA is
addressing this gap by developing models, tools
and approaches that enable the sector to better
understand – at the asset and portfolio levels—their
dependence and impact on natural capital.
In numbers...
•
The economic value of freshwater is
valued at $73.5 trillion annually3
•
Fish stocks are estimated to contribute
$2.5 trillion annually to the global
economy4
•
Forests provide more than $1.5 trillion
directly through forestry and indirectly
by providing energy, food, shelter,
medicine, soil and water conservation,
desertiication control and carbon
storage5
1. Recognising, measuring, and understanding
the dependencies and impacts of natural capital
as an integral part of the economy, rather than
as a separate function, thus providing a better
foundation to manage risks;
2. Meeting growing demand for environmentally
sustainable products and services, both from
consumers and in response to new government
regulations, which provide opportunities.
1.
UNEP Inquiry, The Financial System We Need, Aligning the Financial System with Sustainable Development, October 2015
2.
Ibid.
3.
2030 Water Resources Group, Charting our Water Future, 2009
4.
http://wwf.panda.org/wwf_news/?244770/Ocean-wealth-valued-at-US24-trillion-but-sinking-fast
5.
http://www.fao.org/sustainable-development-goals/en/;
3
Our mission
“
The NCFA is developing the tools and methodologies that inancial
institutions will all be using in 10 years’ time.
”
- Simon Connell
Senior Manager, Risk Framework and Engagement
Standard Chartered
The Natural Capital Finance Alliance (NCFA), coconvened by the UN Environment Finance Initiative
(UNEP FI) and the Global Canopy Programme (GCP),
is a growing alliance of inancial institutions that
are collaborating to understand the importance of
integrating natural capital-related considerations
into their activities as described by the Natural
Capital Declaration (NCD).6
The NCFA is working on standardised
methodologies to quantify the natural capitalrelated inputs to the economy in order to improve
decision-making in the inance sector, by addressing
four core questions:
It is our mission to advance the inancial sector in
integrating natural capital considerations within
inancial products and services, to better understand
risks, pursue opportunities, and establish the
foundation for resilient long-term economic growth
that protects nature and societies.
2. What should be taken into consideration
and what are the emerging and potential
capacities to monitor and manage natural
capital risks and opportunities?
Our models do not aim to put a price on nature.
Instead by quantifying the risks that clients or
investee companies face from their impact and
dependency on nature, we enable inancial
institutions to better understand the value nature
provides. Depletion and degradation of nature
constitute risks to growth and resilience, while
protection of nature offers opportunities for
prosperity and innovation.
“
1. How is natural capital relevant to the
inancial sector?
3. How can natural capital-related dependencies
and impacts be integrated into inancial
products, services, accounting and reporting
while safeguarding the beneits of natural
capital assets?
4. How can the inancial sector facilitate an
orderly capital shift to support the transition
needed to achieve the SDGs and UNFCCC
COP21 climate commitments?
Quantifying natural resource and environmental risk factors can
provide the inancial sector with an opportunity to make a signiicant
breakthrough in risk management practices.
”
- Julie Gorte
Senior Vice President, Sustainable Investing
Pax World
6.
The Natural Capital Declaration was launched at the UN Conference on Sustainable Development (Rio+20) in 2012. It has been signed by the CEOs of
more than 40 inancial institutions, and demonstrates their commitment to the integration of natural capital considerations into private sector reporting,
accounting and decision-making by 2020.
4
Projects
With inancial institutions’ expertise and with
the support of donors, the NCFA has developed
practical applications to manage risk and identify
opportunities across natural capital assets such as
water and forests.
Water risk management tools
Increasingly, companies are inding it challenging
to access suicient quantities of water for critical
business operations. The costs of securing
water inputs are already rising for waterintensive companies in locations vulnerable to
water shortages. Since 2011 companies have
spent more than $84 billion7 worldwide on
conserving, managing and obtaining water – a
number projected to rise as climate change and
demographic pressures affect water supply and
demand. There are also business opportunities, for
example, 55 different solutions have been identiied
to help address water availability in China that
would also result in $US 21 billion in savings8.
It is therefore critical for inancial institutions
to manage the risks associated with companies
exposed to water scarcity and to identify the
opportunities.
Bloomberg water risk valuation tool
In September 2015 Bloomberg and NCFA launched
the Water Risk Valuation Tool (WRVT), enabling users
to incorporate water risks into company valuations
across copper and gold mining companies.
The tool provides a quantitative approach to
evaluate how water risk factors can be incorporated
into company valuations using a discounted
cashlow model. The scenario directly links water
risk to revenue, while an optional social cost of
water (shadow price) can be accounted for in
operating expenses.
The tool builds on Bloomberg’s Carbon Risk
Valuation Tool and maps speciic mine asset
locations and production volumes against water
stress indicators provided by the World Resources
Institute (WRI) Aqueduct water database.
“
The tool is powerful in that it
does not require the user to
have any speciic expertise
or additional datasets – it
is ‘plug and play’ with the
Bloomberg terminal to help
users conduct research in an
easy, cost effective way while
retaining a detailed proile of
the valuation impacts due to
water risk factors.
”
- Su Gao
WRVT project manager and Senior ESG Analyst
Bloomberg
Corporate bonds water credit risk tool
The Corporate Bonds Water Credit Risk Tool
provides investors with a systematic and practical
approach to assess water risk in corporate bonds
and benchmark companies against sector peers,
taking account of projected changes in water
availability to 2040.
7.
Global Water Intelligence
8.
Charting Our Water Future: Economic Frameworks to Inform Decision-Making, McKinsey 2016
5
Projects
Developed through a partnership between the
NCFA, the Deutsche Gesellschaft für Internationale
Zusammenarbeit (GIZ) and the German Association
for Environment and Sustainability in Financial
Institutions (VfU), the Corporate Bonds Water Credit
Risk Tool enables users to integrate inancial risk
exposure to water scarcity into standard inancial
models used to assess the credit strengths of
corporations across water-intensive sectors.
The tool currently covers 24 companies and provides
a model to allow users to add their own companies
and analyses in order to address the information
gap in traditional inancial analysis. It enables
analysts to identify companies that depend heavily
on access to water in locations that are exposed to
water stress and to quantify the potential impact of
water scarcity on the company’s creditworthiness.
Forest risk management tools
Financial institutions are exposed to risks from
deforestation by inancing companies whose
activities contribute to deforestation and forest
degradation through their operations or soft
commodity supply chains.
The NCFA has developed the Soft Commodity Forestrisk Assessment (SCFA) tool with Sustainalytics
to reduce the deforestation risk caused by the
unsustainable production, trade, processing and
retail of soft commodities, especially soy, palm oil
and beef. The production of these commodities
drives deforestation and forest degradation in
tropical forests.
Financial institutions are encouraged to identify how
they can improve their own lending and investment
risk policies to systematically consider natural
capital in the credit policies of speciic sectors,
including commodities, that may have a major
impact on natural capital either directly or through
the supply chain.
6
Environmental risk management
tools
In October 2015, the NCFA launched its project on
environmental risk management with support from
the Swiss State Secretariat for Economic Affairs
(SECO) and the MAVA foundation.
The Advancing Environmental Risk Management
(AERM) project aims to catalyse sustainable
investment and lending globally by reducing risks
from environmental and natural resource pressures.
The objective is to develop methodologies and tools
to map natural capital risks across lending and
investment portfolios with the aim of embedding
them in credit risk assessments.
The project supports the development of global
methodologies to quantify risk, with additional
focus on emerging markets such as South Africa,
Indonesia, Colombia and Peru.
Join us
Demonstrate leadership
Ways to get involved
Join us to help establish the foundation for
resilient long-term economic growth.
•
Contribute expertise or provide practical
feedback on NCFA projects and tools
•
Join our network and work with supporters and
aligned organisations to drive awareness
•
Sign the Natural Capital Declaration (inancial
institutions)
•
Partner with us to encourage wider integration
of natural capital in the inance sector
•
Become a donor and support the work of the
NCFA
The NCFA provides a forum for inancial institutions
to work together and develop standardised
methodologies and structured approaches to
quantify natural capital inputs and externalities.
Supporters of the NCFA share emerging knowledge
in order to inform better decision-making and to
strengthen the capacity to embed natural capital
considerations.
“
We are proud to join the Natural Capital Declaration to deepen this
work of integrating natural capital considerations into our work.
- Courtney Lowrance
Director, Environmental and Social Risk Management
Citi
”
7
For more information visit
www.naturalcapitalinancealliance.org
or contact us at
info@naturalcapitalinancealliance.org
8