Tackling biodiversity loss and adapting to climate change requires increasing protection of, and investment in, natural capital. Natural capital consists of assets such as water, forests, clean air, flora and fauna, which provide services like water catchment, erosion control and crop pollination. These services are vital to the global economy but are under increasing threat from factors such as pollution, overuse and climate change.
Through their banking, investment and insurance activities, financial institutions impact and are dependent upon natural capital, either directly or indirectly through the companies they finance. This interaction delivers both costs and benefits which creates risk and opportunities. Investors are facing different types of natural capital risks, such as the cost of the loss of ecosystem services, environmental regulation and reputational risk. Those risks can be mitigated by integrating natural capital considerations into risk management processes.
There are several natural capital-related initiatives aimed at the finance sector and the Natural Capital Finance Alliance provides tools and guidance for finance professionals.