Just days after the French and UK central banks issued an urgent warning that climate change constitutes an existential threat to the financial system, the Natural Capital Finance Alliance (NCFA) has launched analysis based on its ground-breaking ENCORE tool.

The report analyses the FTSE All-Share Index to see how dependent UK-listed companies are on natural capital such as water, clean air and biodiversity.

The analysis shows that 74% of the Index sectors are potentially highly or very highly dependent on natural capital, with four of the five largest sectors – oil and gas, personal and household goods, industrials and health care – all potentially highly dependent.

A significant portion of work by the UN Environment Finance Initiative is implemented through the Natural Capital Finance Alliance (NCFA) which was launched at the UN Conference on Sustainable Development (Rio+ 20 Earth Summit) in 2012 by UNEP FI and the UK-based non-governmental organisation, Global Canopy Programme (GCP).

The NCFA is a worldwide finance led initiative providing expertise, information and tools on material aspects of natural capital for financial institutions. The financial institutions who make up the Alliance are working together to integrate natural capital considerations into their risk management and financial products and services in order to reduce financial risks and help to prevent further destruction of vital natural capital.

The new analysis, which builds on global launches of the web-based tool ENCORE and a step-by-step guide for banks to assess natural capital risk, produced in association with PwC. As part of the Advancing Environmental Risk Management (AERM) project funded by Swiss State Secretariat for Economic Affairs (SECO) and the MAVA Foundation, ENCORE helps global banks to better predict how the pollution of oceans or destruction of forests, for example, will affect their financial future.

Jon Williams, sustainability and climate change partner at PwC UK, said:

“Our work with NCFA and its partners makes a further and material advance in environmental and social risk management in banks. The report provides practical guidance and tools for managing natural capital risks, present in many banking portfolios but often hard to identify, assess and mitigate. By piloting the approach with the banks involved in this project, we believe this provides a tested risk management framework that can be adopted by other financial institutions. 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.”

Andrew W. Mitchell, Co-Founder Natural Capital Finance Alliance, added:

“We cannot win the battle for sustainability without changing the movement of money. Incentives to maintain natural capital must outweigh incentives to deplete it, or climate change and the destruction of nature will gradually destabilise our global economy. ENCORE provides a methodology to help develop a new ‘Financial Sector Framework for Natural Capital’. This will encourage the world’s financial institutions to understand and to report on their impacts and dependencies, beyond just the atmosphere and carbon, to the wider natural world, upon which we all depend.”