NDC: The Cost of Natural Capital

International Finance Corporation (World Bank) & Natural Capital Finance Alliance Scoping Study on the Business and Investment Case for Natural Capital

The natural world intrinsically provides value to revenue-generating activities, however, this value is inextricably linked to the stocks, flows and quality of ecosystem goods and services available. This ‘natural capital’ is continuously being eroded on a global scale, through over-exploitation, pollution and environmental degradation, which in turn undermines the earth’s capacity to deliver the natural resources and stable environment that our markets and economic activities rely on. This is a critical challenge for both the public and private sectors. 

These changing conditions, have and will continue to increase the risks faced by financial institutions with respect to decisions they make on client creditworthiness and capital allocation. Non-financial information surrounding the economic implications of environmental damage, climate change and the over-exploitation of natural resources must be used to allocated financial capital.  

Together with the Natural Capital Declaration, Global Canopy, UNEP-FI, and the ICMA centre we developed a blueprint of options to include science-based information on the state of the environment and renewable natural resources into credit risk assessments. By providing greater, evidence-based insights into natural capital dependencies and their impacts as a material risk, we sought to inform the development of coherent global methods of financial institutions to evaluate financial risk resulting from corporate impacts and dependencies on natural capital. 

Cojoianu, T.F., Hoepner, A.G.F., Rajagopalan, R.D., Borth, D.S. 2015. NCD Scoping Study: Towards Including Natural Resource Risks in Cost of Capital. Commissioned by the International Finance Corporation (IFC) & Natural Capital Finance Alliance.

Available at: https://naturalcapital.finance/wp-content/uploads/2019/02/560396159.pdf