26 Sep First harmonized framework which connects finance and natural capital
It has been launched in Spain the Finance Sector Supplement to the Natural Capital Protocol, a framework which facilitates financial institutions to measure and value natural capital impacts (positive and negative) and dependencies of their portfolios.
The event has taken place in the Madrid of Bankinter HQ, finance institution which has collaborated in the development of Connecting Finance and Natural Capital: A Supplement to the Natural Capital Protocol with the only case study from a Spanish bank. This case study has been implemented by Ecoacsa.
The event included the presence of Ignacio Torres, Deputy Director of Fundación Biodiversidad; José Manuel Marqués, Head of Financial innovation Division of Bank of Spain; Bettina Kretschmer, Socio-Economic Analyst from DG Environment of European Commission; Mark Gough, Executive Director of the Natural Capital Coalition; David Álvarez, Executive Director of Ecoacsa; Raquel Azcárraga, Director for Sustainability and CSR of Bankinter; and Jacobo Díaz, Deputy Director of Bankinter.
The document results from the collaboration between the Natural Capital Coalition, the Natural Capital Finance Alliance (NCFA) and VBDO (Dutch Association of Investors for Sustainable Development). It has been developed against the backdrop of growing acknowledgment that natural capital and its benefits underpin prosperous economies and societies.
In this context, it is remarkable the growing number of FIs aware of their crucial role as agents of change. This is leading them to encourage good practices throughout economy to guide banking, investment community and insurance sector towards activities with positive impact on natural capital.
Guide to assist FIs in meeting the Action Plan on Sustainable Finance
The European Commission Action Plan on Financing Sustainable Growth (launched last March 2018) has largely contributed to this growing interest. The Plan aims to connect finance with the needs of a European economy determined to progress towards the achievement of SDGs of the Agenda 2030 for Sustainable Development and the Paris Agreement on climate change. The Plan considers relevant work developed by climate change, environment and sustainable finance experts, such guidelines on non-financial reporting (adopted by EC in June 2017) and the final TFCD recommendations report to facilite climate-related financial disclosure in every sector and jurisdiction.
Connecting Finance and Natural Capital aims precisely to provide guidance to FIs to adopt a broader integrated system approach on their natural capital impacts and dependencies, so that they have access to comparable, robust and clear to keep their investors, lenders and insurance subscribers informed of financial risks associated to natural capital. The TCFD recommendations can be implemented alongside the Supplement.
The proposed approach is designed to generate trusted, credible, and actionable information that can be used to inform decisions around operational, market, reputational, and societal risks.
The framework of the Finance Supplement to the Natural Capital Protocol guides the user through four logical stages:
1.- The Frame Stage helps you to establish why you would conduct a natural capital assessment: A business case for why undertaking a natural capital assessment is relevant for your institution. What is pursued with the application of the Protocol? For example: anticipate costs associated with economic sanctions, reputational benefits, etc.?
2.- The Scope Stage helps you define what should be included in your assessment (define the objective and assessment scope -geographic areas-, and what impacts and dependencies are relevant to your company.
3.- The Measure and Value Stage guides you through how to measure and value natural capital: define a list of indicators which are more suitable for measuring, quantifying and valuing business impacts and dependencies on natural capital. The guide includes a wide range of indicators validated by UN for the quantification of most parameters of nearly all sectors.
4.- The Apply Stage helps you interpret your results and identify what next: Do they meet the objective? What are the implications for decision making and communication? Should I accept or refuse an operation or establish sectoral investment policies…?
Bankinter and Ecoacsa have participated in the preparation Connecting Finance with natural capital: A Supplement to the Natural Capital Protocol through a case study focused on stage 2 (defining the objective and scope). From all sectors listed in the Spanish National Classification of Economic Activities (CNAE), a total of 87 have been analyzed. The 641 investing lines in which Bankinter is currently investing are distributed among these 87 economic activities.
The work carried out has made it possible to analyze those 87 sectors and establish a ranking considering sectors with higher and lower impact (or even neutral) on natural capital.
The application of the Natural Capital Protocol has enabled Bankinter to identify, measure and assess numerous indicators of ecosystem services that are not normally collected by other existing evaluation systems. This has provided real data, based on robust methodologies and measurements, of great value for reporting non-financial information to investors and other stakeholders.
After this step, Bankinter will continue the develope the work undertaken in order to complete the construction of an internal system to measure the impact of its investments in natural capital. To do so, the bank will focus on the next stage of the Natural Capital Protocol in the near future. This phase will consist in developing measurement tools to quantify the weight of these sectors within their investment portfolio and what is the impact of each investment on natural capital.
The Spanish launch of the Finance Supplement to the Natural Capital Protocol is framed within the actions of The Hub, the connection point of the Natural Capital Factory -Spanish Regional Platform of the Natural Capital Coaliton- with the European and global natural capital movement.
Why to connect natural capital and finance
Ignacio Torres, Deputy Director of Fundación Biodiversidad: “The financial community is realizing that taking into account both the risks and the opportunities linked to the global change that is taking place is absolutely cost-effective (…). The challenge for the financial sector is to integrate the concept of sustainability into the equation. Otherwise, inaction will be much more burdensome, as well as having to make important changes in the assumption of risks and in taking advantage of opportunities linked to natural capital and climate change .”
Bettina Kretschmer, Socio-Economic Analyst at the European Commission DG for the Environment: “There is a growing recognition that environmental aspects and their associated risks are become financially material. To promote sustainable development in the long term, there is a need for greater transparency about what the financial markets do, in terms of compliance and reporting and the timing of their actions (…). Within the framework of the Action Plan on Sustainable Finance, the EC is working on the development of a taxonomy that defines which economic activities can be described as ’sustainable’ from the environmental point of view and under what conditions. When we talk about green finance we clearly mean much more than climate. We also mean investments in natural capital, improving and enhancing biodiversity. The Technical Expert Group of the EC is also working on EU green bond standards; in benchmarks on low carbon strategies; how investors should integrate environmental, social and governance factors in their decision-making processes; and finally in guidelines to improve corporate disclosure and climate-related information. The results of TEC´s analysis are expected to be ready by June-end of 2019 and, subsequently, a sustainable green finance platform will be created to maintain the long-term debate in the market.”
José Manuel Marqués, Director of the Division of Financial Innovation at the Bank of Spain: In recent years, much progress has been made in the field of financial institutions in raising awareness about the importance of considering aspects related to sustainability. Nobody questions today that are relevant in the medium term and can be very important for the sustainability of financial institutions. Today´s debate is how to approach them, because information and tools are scarce; there are many things to build as financial instruments, metrics (…). However, the lack of instruments to assess and measure should not be an obstacle to start working on it. It is important to convince and tell what is being done in this area, as well as to avoid techniques such as greenwashing. (…) The consideration of environmental issues used to be a reputational issue, but now it has increasingly being transferred to the Risk Department and is considered not only as a key aspect to protect the reputation of the institutions, but also to guarantee their own sustainability.”
Mark Gough, Executive Director of the Natural Capital Coalition: “More and more companies are becoming examples of application of natural capital and Spain is very well represented (…). The application of Connecting Finance and Natural Capital guarantees FIs that nature is part of the conversation. It allows you to measure not only the impacts that your portfolios have on natural capital, but also their dependencies and, above all, put the data in a context that can facilitate changes. For example, it is not the same to explain that the level of emissions of a company has been quantified than to explain that these emissions are affecting their workforce, which in turn affects productivity and, as a consequence, profits are falling.”
Raquel Azcárraga, Director of Sustainability of Bankinter: “Despite Bankinter´s climate change strategy has been usually highly rated by sustainability analysts, we think it´s utmost urgent to start working on associated lines. We are very aware of the signals coming from the market and society in terms of environmental and social issues, as well as regulatory changes about to come from Europe and Spain. We believe that taking into account everything related to sustainability is an unstoppable trend and for that reason we are strongly committed to it. In this sense, the climate change strategy that we will address shortly will be largely fueled by the conclusions of the internal analysis carried out along with Ecoacsa on the application of the Financial Supplement to the Natural Capital Protocol.”
David Álvarez, Executive Director of Ecoacsa: “The application of the Financial Supplement of the Natural Capital Protocol thanks to Bankinter´s project has allowed us to go a step further to provide tools that facilitate decision making to financial institutions and provide solutions. It is a framework that allows not only to assess different investments, but also to develop different tools, management charts and, most importantly, a social and risk analysis of the bank’s current situation with regard to natural capital in order to embark on new paths and identify which opportunities open up.”
Jacobo Díaz, Deputy General of Bankinter: “In Bankinter we have a strong commitment to sustainability and to achieving a better world and a low-carbon economic model. This effort is being recognized over the years. We are increasingly included in more indices that recognize this work: we are in the MSCI index, in Carbon Disclosure Project ranking, and recently we are part of the Dow Jones Sustainability World. This is indeed very good news. In particular, we rank 13th, and when we look at our traveling companions we feel very dizzy and at the same time very proud.”