Executive Perspective: The Natural Capital Protocol Enables New Risk Models

July 27, 2016 |

Courtney Lowrance, Global Head of Environmental and Social Risk Management at Citi explains how the Natural Capital Protocol will enable organizations to model more accurate risk models.

“Imagine a risk officer at an international bank. She has a portfolio of loans to companies that are exposed to drought in multiple countries. One of these companies is an Independent Power Producer that requires water to create steam, which in turn drives turbines to produce electricity. The company may face lower than expected earnings, restricted growth, or a decline in credit profile due to operational disruptions resulting from scarce water supplies and/or increased costs for securing the necessary water. However, our risk officer is unable to quantify the financial risk associated with the drought because the company does not measure and report on its water usage.

She also worries about environmental risk to her agribusiness portfolio, and she wonders how this will affect the supply chains of her food and beverage clients. She has already seen a decline in the credit quality of commodity traders in the Middle East due to their reliance on commodities from several African countries that have experienced severe drought.

Natural capital factors like these are becoming important drivers of economic productivity, and ultimately affect the return profile of assets that depend on them. However, the environmental risks and benefits of nature are still poorly measured and rarely quantified. This is beginning to change. One change agent is the Natural Capital Protocol, which is developing a standardized framework for businesses to measure and value their impacts and dependencies on natural capital.

The Natural Capital Protocol will complement other initiatives, including the Natural Capital Declaration and the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures…”

Read on at: Thomson Reuters

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Introduction from Carl Obst (2017)

Victor Hugo once wrote that “Nothing is so powerful as an idea whose time has come”. Recognising the true value of natural capital, is one such idea. Across private and public sectors, across disciplines, and around the world, initiatives to advance and develop natural capital thinking have emerged rapidly over the past 10 years.

In a blizzard of acronyms, we have the NCC, SEEA, WAVES, IIRC, KIP-INCA, A4S, GRI, EO4EA – among many others. Are they the same, are they competing, are they useful? To both insiders and outsiders this range of initiatives is confusing at best. At worst, it leads to a lack of engagement, avoidance and misunderstanding.

The reality is that, while differences among these various initiatives do exist, they have all been motivated by a common understanding of the reality that we are losing our stocks of natural capital – and that this matters.

While each initiative may have different origins, some differing objectives, and may reflect variations in technique and method, there is much common ground. Indeed, to engage the broader community in tackling the natural capital challenges we collectively face, we cannot afford to focus on distinctions. Instead, we must look to build on the overlaps and seek to build a common language that will enable the exchange of ideas and ongoing innovation.

It is in this spirit of collaboration that the Natural Capital Coalition, together with the IDEEA Group and supported by over 20 organisations, launches this statement on Combining Forces on Natural Capital.

It is especially relevant that this statement of collaboration is launched at the World Forum on Natural Capital, where leading voices in the movement gather every two years, to share best practice, enduring challenges and build further collaborations.

While progress to date has largely taken place in small pockets, in order to move forward we need to ramp up our efforts and move beyond talking with supporters and “the converted”.

For this, we need leaders who can establish spaces for dialogue and development, and who can ensure that technical debates do not form a barrier to progress, that we take full advantage of the diversity of skills and experience already engaged, and that the big picture is always kept in mind.

I encourage you to take the opportunity to read the statement, to share it within your organisations, to sign on, and to join us as we move towards a better understanding and appreciation of the complex and beautiful world in which we live.

Carl Obst is Director of the Institute for the Development of Environmental-Economic Accounting (IDEEA Group), and Lead Author of the United Nation’s System of Environmental-Economic Accounting (UN SEEA).