- New step-by-step guide from Natural Capital Finance Alliance, produced in collaboration with PwC, explains how banks can rapidly assess risk caused by the degradation of nature.
- NCFA urges local banks to consider “not just greenhouse gases, but also how to build wider ecosystem resilience from rainforests to coral reefs”
- Landmark guide has been piloted by banks in Peru including by Banco de Crédito del Perú
At an event in Lima today the Natural Capital Finance Alliance (NCFA) has showcased the world’s first step-by-step guide to help banks conduct a rapid natural capital risk assessment. The guide is produced in collaboration with global audit firm PricewaterhouseCoopers.
The guide has already been piloted by five banks, including Banco de Crédito del Perú and promotes the use of the recently launched ENCORE tool (Exploring Natural Capital Opportunities, Risks and Exposure), which enables financial institutions to understand and assess their exposure to natural capital risks. For example, it highlights how sectors such as agriculture rely on pollination, or how metal processing depends on maintaining ground water provision.
The guide aims to fully unlock the power of ENCORE and, as part of the Advancing Environmental Risk Management (AERM) project, help global banks to better predict how the degradation of nature might affect their financial future. AERM is a wider project by NCFA to help financial institutions understand and integrate the risks they face because of environmental degradation in their risk assessment methods and decision-making tools
The guide also includes case studies of how financial institutions globally are using the power of ENCORE to assess their dependence on nature.
Dante Tosso, Gerente de Riesgo de Crédito y Gestión Corporativa de Riesgos, from Banco de Crédito del Perú (BCP) said:
“This project gives BCP a more rigorous methodology to measure natural capital risk and to understand the highest priority areas in terms of production processes and their dependencies on nature. It gives us a valuable opportunity to incorporate the risk assessment of natural capital into our risk models and credit reports. The ENCORE tool in particular gives us a means of knowing what our impacts and dependencies on nature really are, and thus significantly enriches our analysis of credit risk in clients and exposed sectors."
The guide combines a comprehensive knowledge base with environmental scenarios and location-specific asset data, so financial institutions can assess and quantify their natural capital risk in financial terms. This insight can be incorporated into existing risk processes, for example, by collecting information at origination, combining internal data on client location with environmental data, strategic scenario planning and credit risk management.
Niki Mardas, Member of the NCFA steering committee and Executive Director at Global Canopy, added:
“This timely report sends a powerful message to financial leaders that when they consider the environment they must consider not just greenhouse gases, but also how to build wider ecosystem resilience from rainforests to coral reefs. If we are to build more sustainable capital markets, financial institutions must be able to easily integrate their dependence on nature into existing risk management. That’s why today’s launch of NCFA’s natural capital risk assessment framework is so important. Together with ENCORE, institutions can now identify natural capital risks and act on them.”
Liliana de Sá Kirchknopf, Head of Private Sector Development Division, at the State Secretariat for Economic Affairs in Switzerland (SECO), who are a key funder of the project 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, so market players are empowered to make sustainable financing decisions.”
Notes to editor
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. @globalcanopy
About UNEP FI
The United Nations Environment Finance Initiative (UNEP FI) is a unique global partnership between United Nations Environment and the global financial sector founded in 1992. UNEP FI works closely with over 230 financial institutions who have signed the UNEP FI Statements as well as a range of partner organisations to develop and promote linkages between sustainability and financial performance. Through peer-to-peer networks, research and training, UNEP FI carries out its mission to identify, promote, and realise the adoption of best environmental and sustainability practice at all levels of financial institution operations. For more information, see www.unepfi.org