Guide to Assess Natural Capital Risk in the Banking Sector

PwC approached LBR to provide natural capital expertise as part of their work for the Natural Capital Finance Alliance to set out the material natural capital dependencies of 169 sectors of the global economy.

Client

• Name: Natural Capital Finance Alliance and Price Waterhouse Coopers
• Size: N/A
• Location: Global

Client need

Price Waterhouse and Coopers (PwC) approached LBR to help support work on the development of the world's first step-by-step guide to help financial institutions conduct a rapid natural capital risk assessment for the Natural Capital Finance Alliance. The aim of the project was to allow banks to improve their foresight by uncovering and exposing risk that would otherwise have been undetected. The work also aimed to provide banks with a way to better monitor the evolution of natural capital risk.

The challenge

Helping to define and agree on materiality criteria and an assessment framework

Identifying groups of sectors which are similarly affected by natural capital dependencies

Conducting a global assessment of the materiality of natural capital dependencies

Consulting with experts to validate methodologies

Conducting four pilot studies with partnering financial institutions to help measure the risk associated with different aspects of banking i.e. portfolio assessment, the assessment of specific transactions, evaluating the risk process, etc.

The results

Pilot risk assessments for four banks including: portfolio assessment, the assessment of specific transactions and the evaluation of current risk processes in relation to natural capital.

Inputs into the ENCORE model in terms of consolidating and checking descriptions of natural capital dependencies

Inputs into the materiality criteria for the ENCORE model

Inputs into Integrating natural capital in risk assessments: a step-by-step guide for banks.

What happened next

The ENCORE model and banking framework were released in 2019 and have been developed further by World Conservation Monitoring Centre to include the impacts associated with different economic sectors. Following on from this work LBR have been asked to provide informal reviews for the development of the draft guidance for the Science Based Target Network and the enhancement of ENCORE.