This report is a product of Sustainable Finance Lab NL.
1.1 New non-governmental agents of change
The Netherlands Environmental Assessment Agency (Planbureau voor de Leefomgeving, PBL) has suggested that instead of waiting for an intergovernmental consensus, global biodiversity governance may need to take a more pragmatic approach aiming at strengthening new non- governmental agents of change (Hajer 2011). In its report A Pragmatic Approach to Global Environmental Governance (PBL forthcoming) it identifies six building blocks for decentralized initiatives to meaningfully address large-scale environmental problems such as biodiversity loss. PBL wants to apply this framework to different areas by conducting a number of case studies. One of these being the international efforts of the financial sector to stimulate the use of natural capital accounting and reporting so that it can properly assess the risks and opportunities of its clients and investments with regard to biodiversity.
1.2 The financial sector and natural capital accounting and reporting
Increasingly the financial sector recognizes the potential threats and opportunities of the transition towards a more sustainable global economy, especially with regard to climate change and the energy transition. To assess these risks and opportunities data are needed on the exposure of financial institutions and the financial system to the different ecological imbalances (Schoenmaker and Van Tilburg 2016a, 2016b). Natural capital accounting, which includes carbon accounting, thus is a requirement for the financial sector to adequately weigh the risks and opportunities and to let the market work and manage the transition in an orderly way (Carney 2016). The European Commission mentions enhancing “the efficiency of capital markets” as a pathway along which mandatory non- financial reporting may has its effect (EC 2013). This thinking has led to the installation of an industry led task force on climate-related risk disclosure by the Financial Stability Board (Taskforce 2016) and a call for the development of stress tests and scenario’s to assess the risk of natural capital related exposures (SFL 2014, ASC ESRB 2016, Ecofin 2016). The use of non-financial data by the financial sector can also be an important driving force for companies to collect and publish these (Maas and Vermeulen 2016), as the cases of the financiers involvement with the Carbon Disclosure Project and the Access to Medicine Index have previously shown (AMI 2016, CDP 2014).
1.3 Research questions
This report discusses whether the financial sector can play a similar role for natural capital accounting and reporting as it has done with carbon and access to medicine before, and what is needed to realize this potential from government(s). We look whether the building blocks identified by PBL can help to understand this dynamic.
In order to do this we answer the following research questions:
- What is natural capital accounting?
- Which organizations are involved in the development of the natural capital accounting methodologies and stimulating its uptake? How are they organized?
- How is the global stock of natural capital developing and what is thus the implementation gap vis-à-vis stated public policy goals?
- What is the potential of natural capital accounting and reporting to conserve natural capital through the private sector?
- What is the relevance of the financial sector to natural capital?
- How is natural capital accounting and reporting relevant for financial institutions?
- How do financial institutions account and report on their own (in)direct impact on natural capital?
- What role do financial institutions play in the development of natural capital accounting and reporting methodologies and its implementation with its clients and investees?
- How effective is the financial sector as an agent of change in the field of natural capital accounting and reporting?
- In what way do the building blocks identified by PBL help to explain this performance?
- What lessons can be learned from this case for governments that want to utilize the potential of the financial sector in preserving natural capital?
1.4 Research methodology
The research design relies mostly on qualitative methods for both data collection and analysis. We conducted a literature survey (both grey literature and peer reviewed academic publications) and held 10 semi-structured expert interviews (see annex for the list)…”
Download the report at: Sustainable Finance Lab NL.