The Natural Capital Finance Alliance (NCFA previously NCD – Natural Capital Declaration) is a finance sector initiative, endorsed at CEO-level, to integrate natural capital considerations into loans, equity, fixed income and insurance products, as well as in accounting, disclosure and reporting frameworks.

The NCFA is an initiative that goes beyond ‘sustainability’. It is about the materiality of natural capital to the health of financial institutions.

To achieve this, signatory financial institutions are working alongside supporter organisations to develop metrics and tools to help financial institutions to take natural capital considerations into account in future investment and lending decisions.

How is Natural Capital relevant to the Finance Sector?

As increasing global pressures chip away at stocks of natural capital, businesses face growing challenges. These can come in the form of legal liability, credit risk, volatility, unexpected falls in cash flows, and reputational, regulatory and portfolio risks, each presenting different financial pressures requiring additional mitigating measures. For example, the EU Environmental Liability Directive (ELD) makes companies directly liable for impacts on water resources, fauna, flora and natural habitats. Operators of risky or potentially damaging activities can therefore be held liable for the preventative and remedial costs of environmental damage. In these cases an investor may be left exposed to any litigious action against the operating company which could adversely affect returns.

At the same time, for industries dependent on natural capital, continued erosion of the global resource base presents additional operational challenges. Surging demand in the past decade alone has reversed a 100 year decline in resource prices. Increased demands on agricultural production, as well as associated water and energy requirements from feeding an additional billion people by 2030, will put upward pressure on the price of global soft commodities. These predicted increases will fall well within the investment horizon of pension funds and many loans, and represent supply chain challenges for many downstream businesses. A 2011 report by McKinsey found that 29% of profit warnings from companies in the FTSE were due to increases in the cost of raw materials. For large financial institutions, the exact level of exposure to this financial risk linked to natural capital is often not fully understood. This was highlighted in a recent EY study, which revealed that environmental externalities can equate up to 50% of company earnings in a standard equity portfolio.

Source and more info : http://www.naturalcapitaldeclaration.org/

https://www.youtube.com/watch?t=365&v=Cd8dOcIblPk

What’s the natural capital protocol?

At present there’s a growing number of fragmented activities underway with regards to the valuation of natural capital in business and public sector applications. One of the challenges in scaling uptake in business is the lack of a harmonised approach to enable natural capital valuation to be practically used in applications e.g. internal management, reporting and disclosure.  This has changed since the 13th of July with the publication of the brand new Natural Capital Protocol!

The Project

The Natural Capital Protocol Project responds to this challenge. The overall vision of the Natural Capital Protocol (NCP) is to transform the way business operates through understanding and incorporating their impacts and dependencies on natural capital.

The aim of the NCP is to enable business to assess and better manage their direct & indirect interactions with the natural capital, in particular through:

• increasing knowledge and awareness to generate & deliver greater consistency
• equipping project managers to effectively link and embed the outputs directly into business (operations, accounting, etc.)
• stimulating action

The Natural Capital Protocol is a product of the Natural Capital Coalition. The latter has brought together the world’s leading institutions from business, accountancy, consultancy, financial institutions and NGOs to develop the Natural Capital Protocol. Some of these institutions are: Carbon Disclosure Standards Board, University of Cambridge Institute for Sustainable Leadership, Naturalogic’s partner Trucost, Conservation International, EY, FAO, GIST Advisory, Imperial College London, Integrated Sustainability Services, IUCN, Natural Capital Project, The Nature Conservancy, The Sustainable Fashion Academy, PwC, WBCSD, World Resources Institute and WWF.

Source: www.naturalcapitalcoalition.org