Natural capital underpins all economic activities. Businesses depend on it for direct inputs, such as water and materials. They also have an indirect dependence on it for production processes, such as through erosion control and flood protection. Environmental degradation puts at risk the capacity of natural capital assets to continue to generate the ecosystem service benefits upon which businesses depend. A failure to make this link exposes businesses and financial institutions to ‘hidden’ risks.
Ecocomic sector dependencies on natural capital and the flow of ecosystem services derived from them is poorly documented. Attempts to articulate these links have lacked robust evidence to support them. In addition, the data on natural capital and associated ecosystem service flows is dispersed and of variable quality, and often inaccessible to businesses and financial institutions.
The Advancing Environmental Risk Management project, a flagship project of the Natural Capital Finance Alliance, aims to address this issue by identifying and structuring the information on ecosystem services and natural capital assets that financial institutions need to assess their exposure to natural capital-related risks and embedding these considerations within existing risk management processes.
The UN Environment World Conservation Monitoring Centre contributed to the first phase of this project, which aimed to provide the knowledge base needed for financial institutions to understand how their clients and portfolio are affected by their dependence on the environment. The outputs lay the groundwork for financial institutions to perform their own assessment of where environmental degradation poses the greatest risk to their portfolio, and include:
The knowledge base produced as part of the first phase this project will be used by the Natural Capital Finance Alliance to develop a step-by-step methodology for financial institutions to assess their exposure to natural capital risk, as well as a visualisation tool to make all of the outputs publicly available. This is a key first step in a project that ultimately aims to embed the systematic consideration of natural capital risks and opportunities within models of financial risk.
UN Environment World Conservation Monitoring Centre will continue to contribute to the project in subsequent phases, providing technical
Our team brings significant expertise in the identification, collation and analysis of natural capital for decision makers. The project is led by the Business and Biodiversity team with support from our Ecosystem Assessment, Economics, Marine and Science teams.
The Advancing Environmental Risk Management project is managed by the Natural Capital Finance Alliance - a collaboration with the finance sector to lead the integration of natural capital considerations into financial decision-making. It is a joint initiative of UN Environment’s Finance Initiative and Global Canopy Programme, led by 45 financial institution signatories and supported by a wide range of other stakeholders. The project is funded by the Swiss State Secretariat for Economic Cooperation and the MAVA Foundation.