The agricultural sector is one of the sectors most exposed to environmental risk caused by climate change and human degradation of ecosystems.
A new template that enables financial institutions to conduct natural capital credit risk assessment across different agricultural sectors and geographies, taking into account factors such as water availability, use and quality; soil health; biodiversity; energy use and greenhouse gas emissions is launching today.
The new sector-specific guide is consistent with the leading international standard for including natural capital in business decision-making, the Natural Capital Protocol and complements the Natural Capital Finance Alliance’s new ENCORE tool and step-by-step guide to incorporating natural capital into bank’s risk management processes.
The approach was developed by Dr Francisco Ascui (Senior Lecturer in Business and Climate Change at the University of Edinburgh Business School) and Theodor Cojoianu (Marie Curie and IRC Fellow at the Michael Smurfit Graduate Business School, University College Dublin) in response to growing demand for better frameworks to assess natural capital risks in key sectors of the economy.
A healthy environment is the best foundation for economic prosperity, human health and well‐being. Food production already uses 50 per cent of the world’s total habitable land, and adequately feeding 10 billion people by 2050 will require a further 50 per cent increase in food production. Land degradation and desertification have increased, with land degradation affecting approximately 29 per cent of global land, where some 3.2 billion people reside. Agriculture is therefore both fundamentally dependent on the environment, and a leading driver of environmental impacts.
Dr Francisco Ascui, Senior Lecturer in Business and Climate Change at the University of Edinburgh Business School said:
“The agriculture sector is at the front line in terms of both its impacts and dependencies on the environment. Farmers are key custodians of our soil, water and biodiversity and depend on these resources for their livelihood, so lenders should recognise and reward more sustainable farming practices. This new approach to natural capital credit risk assessment is only a first step – the challenge will be in implementing it. This is a journey that we have to start, if we’re going to have any hope of achieving truly sustainable agriculture.”
Anders Nordheim, Programme leader for ecosystems and sustainable land use at UN Environment Finance Initiative said:
“Agriculture and its future ability to provide a stable food supply in the face of accelerating environmental change is a concern for many financial institutions. Previous work in this area has provided anecdotal evidence of both asset and portfolio risk, but it is only now that we are able to construct robust frameworks and consistent information that enable analysis to support strategic decisions. This new approach is a key contribution.”
Download the guide here.
The Natural Capital Finance Alliance (NCFA) is a finance sector-led initiative, providing expertise, information and tools on material aspects of natural capital for financial institutions. It works to support these institutions in integrating natural capital considerations into their risk management processes and products as well as helping them to discover new opportunities. The NCFA secretariat is run jointly by the UN Environment Finance Initiative and Global Canopy.