User Register / Login

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 

Benefit from the Coalition’s unique overview of the capitals approach and community, gain insights into the latest thinking and developments and receive newsletters and project updates.