To date, claims Andrew Mitchell, founder & executive director of the Global Canopy Programme, natural capital has been invisible in the global economy. Now is the time to change all that.
By Elaine Cohen
Natural Capital Declaration
Among the flurry of declarations, collaborations and new initiatives being announced ceremoniously almost by the hour at Rio+20, the 2012 United Nations Conference on Sustainable Development, taking place in June 2012 in Rio de Janeiro, Brazil, one worthy of note is the Natural Capital Declaration (NCD).
This initiative is convened by the United Nations Environment Programme Finance Initiative (UNEP FI), the Global Canopy Programme (GCP), and the FGV Center for Sustainability Studies (GVces). The idea is to provide financial institutions with a new framework to embed Natural Capital Accounting in their risk management, due diligence, loans, investments, and insurance activities.
Designed to be more than a set of principles or declaration of support, the NCD calls upon the CEO's of financial institutions who sign the NCD to commit to a process which will work towards delivering a first-ever methodology to account for their impacts on Natural Capital (the Earth’s natural assets - soil, air, water, flora and fauna -- and the ecosystem services resulting from them, which make human life possible) and integrate these considerations into the decision making process of their financial products and services.
Another Acronym, Another Commitment
Equator Principles: launched in 2003, currently 77 signatories.
United Nations Principles for Responsible Investment: launched in 2006, currently 1,070 signatories.
Both initiatives were designed to get financial institutions integrating environmental considerations into investment decisions. So why a new initiative? Why not simply enforce existing frameworks? What's different about NCD?
Andrew Mitchell, Founder and Executive Director of the Global Canopy Programme, creator of the Forest Footprint Disclosure Project and one of the prominent NCD masterminds, explains:
"The NCD complements other initiatives but it is different in that it is squarely focused on Natural Capital. The NCD has been designed to have teeth. We have spent a couple of years in consultations, including investor groups, and for the first time in my life, I believe there is a momentum building that is encouraging people to get serious about accounting for nature.
Vast amounts of Natural Capital are being destroyed. The NCD will offer a way to change that. It is critical that the leaders of financial institutions will get on board, as it is the movement of money that will change things. The impact of money on the environment is massive. I would like to see the NCD with a clear roadmap developed by 2015 and an agreed methodology in use by 2020".
Accounting for Natural Capital
One of the big challenges in accounting for Natural Capital is creating an aligned framework so that we can all speak the same language and count the same numbers. The World Bank Wealth Accounting and the Valuation of Ecosystem Services (WAVES) Initiative was launched 2010, as a partnership of UN agencies, national governments, NGOs, academic and other institutions, to "integrate natural resources into development planning through environmental accounting".
This is an ambitious program, aiming to provide accountability at the level of national and global economies. The NCD adds the missing piece: the commitment of those who are not only counting the money, but moving it around – the big financial institutions.
Natural Capital – Close to Home
Thirty seven forward-looking CEOs had already signed up to the NCD by the time of formal launch of the initiative at Rio on June 16th. The telling thing, though, is that most of these are not the largest, influential, market-leading financial institutions in developed economies. The ones who have been quick to identify with the NCD and declare their support are those physically closest to the Natural Capital, such as rainforests, which are being destroyed.
Signatories in Asia, Latin America and Australia are the early-adopters, whereas the larger financial institutions, including those who have been most vocal on caring for the natural environment, are slow to buy in to this initiative. The only U.K. bank, for example, to have bitten the bullet, at the time of writing, is Standard Chartered. Nevertheless, the achievement of 37 signatories by the NCD launch is more than the NCD convening bodies targeted, and this bodes well for expanding the support base in the coming months.
The Visibility of Natural Capital
“You can liken our global sustainability to a three-legged stool. The stool itself is built capital, and the economic and social legs are propping up the stool. The third leg, the environmental leg, is being eaten by termites, and when that leg collapses, the entire stool collapses. We must find a way to make Natural Capital visible and bring it into the global economy,” says Andrew Mitchell.
Can financial institutions be relied upon to share ownership for the third leg of the stool?
Legalized misappropriation of Natural Capital, externalization of environmental costs, under-evaluation of the impact of biodiversity abuses and failure to account for environmental impacts have all contributed to the most widespread veil of complicity throughout the value chain in our global economic history.
It takes a great deal of optimism to expect that financial institutions will become truly accountable. Perhaps the language of the NCD – it's about capital, a term financiers are familiar with - may be the trigger for change. Certainly, this change will not be possible without the active endorsement of leading policy makers around the world – and therein lies another layer of complexity – but the NCD will focus accountability and hopefully, generate a new level of action that will put an end to declarations of principle and deliver concrete outcomes for sustainable change.