Banks Consider Natural Capital Risks

The Natural Capital Declaration — signed by the Rabobank Group, Pax World Management and about three dozen other financial institutions at last summer’s Rio+20 Earth Summit — has entered a new phase during which signatories will set about implementing the commitments laid out in the NCD.

Four working groups, led by banks from four continents — Rabobank, Banorte, National Australia Bank and Nedbank — will address challenges to incorporating natural capital considerations in the finance industry.

Created by the UN Environment Program Finance Initiative, Global Canopy Programme and Center for Sustainable Studies of the Business Administration School of the Getulio Vargas Foundation, the NDC commits banks, investors and insurers to incorporating natural capital considerations into the risk assessment procedures they undergo before making a loan, equity, bond or insurance products-related decision.

The core objectives of Phase II of the NCD are to:

• Stimulate financial institutions that have signed up to the NCD to show progress towards implementing the NCD commitments.
• Develop practical tools and metrics to integrate natural capital in all asset classes and relevant financial products
• Increase the number of signatories so as to build a greater level of acknowledgement within the financial sector about the materiality of natural capital.

Signed by CEOs, a total of 41 financial institutions have now endorsed the NCD, which Ivo Mulder, UNEP program officer says shows that a growing group of banks, investors and insurance firms recognize the need for a broader understanding of emerging natural capital risks in bond and equity markets, insurance and lending.

While natural capital used to be “an esoteric subject for most financial institutions,” increasing weather extremes, volatile commodity prices and water challenges are making more financial institutions think about how these issues affect their clients — and their own bottom lines, Mulder says.

The Ceres-led Investor Network on Climate Risk last month proposed that companies listed on US and global stock exchanges be required to include a series of environmental, social and governance sustainability disclosures in their annual financial filings.

The group of investors, which includes BlackRock, British Columbia Investment Management Corporation and the AFL-CIO Office of Investment, drafted a proposal that calls for companies to disclose an ESG materiality assessment process, a sustainability table of disclosures that would map the locations of ESG content in public documents, and ESG reporting on eight key issues.