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.
Economic 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 assist financial institutions in understanding natural capital-related risks by linking environmental change with its consequences for the economy.
UN Environment World Conservation Monitoring Centre has been working 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 and lays the groundwork for financial institutions to perform their own assessment of where environmental degradation poses the greatest risk to their portfolio.
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.
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.
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, 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 (SECO) and the MAVA Foundation.