The financial sector can have a significant impact on companies’ CSR policies when deciding to direct money to green or grey projects: loans and investments determine whether a company has the capital to stay in business. Natural capital considerations can be embedded in products and services by exclusion of companies or sectors harming natural capital from investment portfolios, integration of ESG criteria in investment and lending decisions, and impact investing. Supporting measures are an understanding the impacts and dependencies of financial institutions on natural capital (directly and through customers) and a global consensus on accounting, integrated reporting and disclosure.
Necessary steps
Within the Natural Capital Declaration (see “Which knowledge networks are working for… the financial sector?”) signatory financial institutions are working alongside supporter organizations in four solution areas:
- Understanding the impacts and dependencies of financial institutions on natural capital (directly and through customers) which can translate into material risks or opportunities;
- Embedding natural capital considerations in financial products and services;
- Achieving a global consensus for the integration of natural capital in private sector accounting and decision-making; and
- Achieving a global consensus on integrated reporting and disclosure.
Natural Capital Declaration (2013), p. 4.
Methods & Instruments
The Dutch Investors Association for Sustainable Developments in cooperation with CREM are publishing the ‘Guide Natural Capital & Financial Institutions’. This guide discusses multiple ways for financial institutions to incorporate natural capital in their products and services:
- Exclusion of companies or sectors harming natural capital from investment portfolios.
- Integration of environmental, social and governance (ESG) criteria in investment and lending decisions. The Equator Principles are a well-known framework.
- Active ownership (voting and engagement) to address shareholders and companies on their responsibilities and activities regarding natural capital.
- By directing Impact Investments towards strengthening natural capital.
The guide also provides an overview of the ways in which financial institutions can incorporate natural capital in their decision-making and how they can provide transparency. The guide furthermore contains a self-assessment tool enabling financial institutions to get insights in their performance on natural capital.
VBDO (2015). (this report can be downloaded from www.vbdo.nl from the summer of 2015)
More information on the Equator Principles on its website.
Another valuable instrument is the Atlas Natural Capital.
