Investors urged to act on natural capital to help halt climate change

The investment sector has been urged to assess their impacts and dependencies on natural capital resources - such as clean air, oceans and forests - in the wake of the Intergovernmental Panel on Climate Change's (IPCC) landmark report on global warming.

The Natural Capital Finance Alliance (NCFA) has partnered with the Natural Capital Coalition and the Dutch Association of Investors for Sustainable Development to launch a guide providing financial firms with information on how to implement a natural capital approach.

Such an approach integrates ecosystem-oriented management with economic decision-making and development by placing a financial value on natural resources.

The guide, called Connecting Finance and Natural Capital and published last Friday (12 October), aims to steer financial institutions through the process of identifying, measuring and valuing material risks and opportunities.

Specifically, the guide calls on investors to stop “centring” on issues such as deforestation, ocean conservation or emission reductions in order to adopt a more holistic approach to sustainability challenges. It claims that doing so will provide an analysis that is “more directly material to investment risk and returns”.

NCFA steering committee member Niki Mardas said the launch of the guide marks an “important step” in the transition to a green financial sector – particularly after the IPCC’s warning last week that the global temperature increase will likely hit 1.5C by 2030.

“The latest report from the IPCC paints a worrying picture of climate change; it shows that 2C of warming increases the likelihood of natural capital-related risks such as forest fires, extreme weather events and the spread of invasive species,” Mardas said.

“But the report also concludes that a 1.5C world is possible if we act quickly and undertake rapid and far-reaching transitions in energy, land, urban, infrastructure and industrial systems. The implications of this for financial institutions are monumental, with entire industries needing to change business models and rethink their relationship with natural capital.”

Natural selection

The launch of the guide has been welcomed by big-name investors, including BNP Paribas Assets Management, ASN Bank and YES Bank.

The publication comes after the world’s total natural capital was valued at £53trn by the United Nations Environment Programme in 2010, with numerous reports having emerged since then presenting the potential benefits of adopting a natural capital approach.

Technical services firm AECOM, for example, recently stated that UK firms are missing out on a £7bn windfall by ignoring the natural capital, while the Aldersgate Group has called on the UK Government to support businesses investing in natural capital.

Similarly, Think Tank Green Alliance has concluded that natural capital frameworks can be combined with conservation approaches to align business actions and environmental protection.

Despite this rising interest in natural capital concepts, some suggest that natural capital accounting can be a “disaster” for sustainability professionals and is not an effective way of engaging the finance community with environmental issues.

Sarah George

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