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Finance Firms Must Adopt a Natural Capital Approach to Risk, Warns PwC

January 21, 2019 |

This article was originally published on Edie

“In the face of climate challenges, most financial service providers are still failing to assess the extent to which environmental degradation could pose financial risks to their firms, PwC has warned.

While banks have made progress to disclose environmental risks relevant to their businesses most are failing to assess the sustainability of their entire portfolios, a new joint report from the professional services giant, published on Thursday (17 January), has concluded.

Produced in collaboration with the Natural Capital Finance Alliance (NCFA), the United Nations Environment Programme (UNEP) and anti-deforestation NGO Global Canopy, the report warns that most finance firms are overlooking how events like droughts, floods and heatwaves can put their borrowers’ operations at risk.

In order to overcome these issues, big-name finance companies should adopt a natural capital approach, the report concludes. Such an approach integrates ecosystem-oriented management with economic decision-making and development by placing a financial value on natural resources.

“By focusing on risks to businesses resulting from environmental degradation, rather than on the businesses’ environmental impacts – which have traditionally been the focus of environmental risk assessment – natural capital risk analysis allows financial institutions to see the risks that they are exposed to in a new light,” the report states.

In a bid to help financial firms adopt this natural capital approach to risk, PwC has included a step-by-step guide in the report. The tool, which comprises a four-step approach to placing a value on nature, is being trialled by Colombia, South Africa and Peru ahead of the World Economic Forum event next week.

Specifically, it recommends that banks, investors and pension schemes achieve internal buy-in for a natural capital approach before mapping existing environmental risks within their portfolios. It goes on to urge such firms to identify which kinds of environmental disruption are most material to their operations.

“Given the increasing erosion of natural capital and the increasing risks that businesses and their financiers face, this report is a timely addition to the tools available to risk managers,” PwC UK’s sustainability and climate change partner Jon Williams said…”

Read on at: Edie.

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