Three-quarters of UK FTSE All-Share firms 'highly dependent' on natural capital

Almost three-quarters (74%) of UK businesses listed on the FTSE All-Share Index have been dubbed "potentially highly dependent" on natural resources such as clean air, water and soil in a new study on nature-related business risks.

The oil and gas, consumer goods, industrial and healthcare sectors were deemed to be at high financial risk from natural impacts such as extreme weather events and biodiversity loss

The oil and gas, consumer goods, industrial and healthcare sectors were deemed to be at high financial risk from natural impacts such as extreme weather events and biodiversity loss

Conducted by the Natural Capital Finance Alliance (NCFA), the research analysed the extent to which these firms depend on natural capital – the monetary value which can be assigned to natural resources – to conduct their business in a profitable manner.

It found that 74% of these companies were either “potentially highly” or “very highly” dependent on natural capital, with the oil and gas, consumer goods, industrial and healthcare sectors all classed as having a “potentially high” dependency. These sectors, the NFCA claims, are some of the largest in the world, but also the most exposed to physical climate risks such as droughts, floods, heatwaves and biodiversity loss.

The publication of the NFCA’s findings today (29 April) coincides with the Coalition’s launch of a new online tool designed to help global banks adopt a natural capital approach to decision-making and predict how climate risks will affect their financial future.

Called ENCORE and produced as part of a partnership with professional services giant PwC, the aim of the tool is to empower finance sector stakeholders – including investors and insurance providers – to make more sustainable and “future-proof” financing decisions. Its development was jointly funded by the Swiss State Secretariat for Economic Affairs (SECO) and the MAVA Foundation – a philanthropic organisation focused on preserving biodiversity across the Mediterranean, West Africa and Switzerland.

"We cannot win the battle for sustainability without changing the movement of money,” the NFCA’s co-founder Andrew W. Mitchell said.

“ENCORE provides a methodology to help develop a new 'Financial Sector Framework for Natural Capital'. This will encourage the world's financial institutions to understand - and to report on - their impacts and dependencies beyond just the atmosphere and carbon, to the wider natural world, upon which we all depend."

The world’s total natural capital was valued at £53trn by the United Nations Environment Programme in 2010. More recently, separate research from the NCFA found that FTSE100 firms face collectively losing $1.6trn of market capital by 2030 if they fail to adopt a natural capital approach to decision-making.

Money talks

The launch of ENCORE is a timely one, with a coalition of 36 central banks and regulators having this month issued a rallying cry urging all stakeholders across the global sector to address climate challenges by "greening" the financial system.

The call to action was made on 17 April by the Network for Greening the Financial System (NGFS), which collectively accounts for around 44% of global GDP and serves almost one-third (31%) of the world’s population. Members include the likes of the Bank of England, People's Bank of China, the World Bank and the European Central Bank.

Also within the past month, the Bank of England’s governor Mark Carney and the Banque De France’s governor Villeroy de Galhau have warned stakeholders across the finance sector that the global financial system will collapse without urgent, climate-focused reform.

In an article published in the Guardian, the duo wrote: “As financial policymakers and prudential supervisors we cannot ignore the obvious physical risks before our eyes. 

“Climate change is a global problem, which requires global solutions, in which the whole financial sector has a central role to play.”

Specifically, the governors concluded that a “massive reallocation of capital” was necessary to prevent global warming rising above the 2°C maximum target set by the Paris climate agreement.

Sarah George



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