Balancing the books for nature

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Balancing the books for nature

The world’s first comprehensive tool linking environmental change with its consequences for the economy has been launched.

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.

A web-based tool, called ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure), will help global banks, investors and insurance firms assess the risks that environmental degradation, such as the pollution of oceans or destruction of forests, causes for financial institutions.

Much of what we need is offered by nature (clean air, food, water, fibers or minerals) and these are natural capital assets. Natural elements combine to provide the goods and services we all depend on for healthy lives and productive economies. These assets also provide ecosystem services which benefit businesses, such as reducing risks like flood and storm protection or mitigating direct impacts from business activities like bio-remediation.

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Ecosystem services underpin all economic activity and although business may be profiting in the short-term, in many instances they are jeopardising the very resources that enable them to operate. Adverse changes in these natural capital assets can have a potentially negative effect on the businesses which depend on them.

As many natural resources are finite and are being exploited at unsustainable rates, the threats they are facing are often overlooked by financial institutions. It’s important that the impact of accelerating environmental change is recognised by everyone.

To do this, institutions need robust mechanisms to explore, identify and manage risks to these natural capitals to safeguard their operations. However, this isn’t always easy. Ecosystem services are not as tangible as products and currency, and are not often an integral consideration in business decision-making processes.

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This is where ENCORE comes in, linking environmental change with its consequences for the economy. Through a standardised, scientifically robust and fit-for-purpose classification of natural capital that considers atmosphere, habitats, land geomorphology, ocean geomorphology, minerals, soil, species and water, ENCORE shows how accelerating environmental change affects the economy.

Its comprehensive database covers 167 economic sectors and 21 ecosystem services. It has been developed to help global banks, investors and insurance firms assess the risks caused by environmental degradation, such as the pollution of oceans or destruction of forests.

Through a standardised, scientifically robust and fit-for-purpose classification of natural capital that considers atmosphere, habitats, land geomorphology, ocean geomorphology, minerals, soil, species and water, ENCORE shows how accelerating environmental change affects the economy.

For instance, an assessment using ENCORE showed that 13 of the 18 sectors that make up the FTSE 100 are associated with production processes that have high or very high material dependence on nature. These include the harvesting of cereals and its reliance on pollination, or metal processing and its reliance on groundwater provision.

Nature is often difficult to understand and navigate but thanks to ENCORE, financial institutions are able to see the risks they are facing and where to curb them.

ENCORE’s ultimate goal is to mainstream natural capital considerations into financial decision-making. With an understanding of how the businesses they invest in or lend to rely on ecosystem services, financial institutions can engage with companies in a more sustainable manner and ensure that those services that nature provides do not cease to exist.

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UN Environment Programme World Conservation Monitoring Centre

The UN Environment Programme World Conservation Monitoring Centre (UNEP-WCMC) works with scientists and policy makers worldwide to place biodiversity at the heart of environment and development decision-making to enable enlightened choices for people and the planet.