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 the financial institutions that invest in or lend to them, to ‘hidden’ risks.
Unsustainable consumption and production are accelerating environmental change, notably in the form of climate change, pollution, and biodiversity loss. Corporate action to reduce climate change and pollution is relatively well developed. However, awareness and action on biodiversity by businesses and the finance sector lags far behind climate change where the Task Force on Climate-related Financial Disclosures provides a significant incentive and guidance to disclose climate-related financial risks. While there is a growing interest to move beyond carbon, there is presently limited consideration of biodiversity within financial decision-making largely due to a lack of perceived materiality of the issue, limited data and a lack of methodologies to guide actions.
UN Environment Programme World Conservation Monitoring Centre has partnered with the Natural Capital Finance Alliance to build a knowledge base for financial institutions to understand how businesses depend and impact on nature, in order to manage risks and potential exposure, and unlock opportunities related to natural capital. This knowledge base is made available through ENCORE. Starting from a business sector, ecosystem service, natural capital asset or driver of environmental change, ENCORE can be used to start exploring natural capital risks. ENCORE allows users to identify the materiality of dependencies on 21 ecosystem services for the production processes of 167 sub-industries. It also identifies the natural capital assets underpinning each ecosystem service and the potential drivers of environmental change that could influence them in a way that materially affects business performance. These risks can be explored further to understand location-specific risks with maps of natural capital assets and drivers of environmental change.
In a second phase of the project from 2019-2021, ENCORE is being further enhanced to allow financial institutions to align their portfolios with biodiversity targets. As new scientific assessments on biodiversity and ecosystem services become available, momentum is building around business and financial institutions being able to demonstrate how they are contributing towards global targets on biodiversity, through the Sustainable Development Goals, Science-Based Targets and the developing Post-2020 Global Biodiversity Framework. This new module will help businesses and financial institutions understand and measure how their activities might be driving biodiversity decline and how they might take actions to manage risk and uncover opportunities by reducing these pressures.
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 colleagues in the Ecosystem Assessment and Policy Support, Informatics, Marine and Science teams.
ENCORE is developed by UNEP-WCMC in partnership with 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, led by 45 financial institution signatories and supported by a wide range of other stakeholders. The first phase of the project from 2017-2019 was supported by the Swiss State Secretariat for Economic Cooperation (SECO) and the MAVA Foundation. The second phase from 2019-2021 is supported by the Swiss Federal Office for the Environment (FOEN).