Could financial institutions hold the key to accounting for natural capital?
Accounting for natural capital is critical to correct the massive built-in flaw in the modern world’s prevailing economic system – the fact that it largely ignores natural capital, despite being inescapably dependent upon it.
The concept is taking hold. Initiatives like Wealth Accounting and the Valuation of Ecosystem Services (WAVES) and The Economics of Ecosystems and Biodiversity (TEEB) provide strategies to help tell the whole story of the world’s capital. The Global Canopy Programme, UNEP Finance Initiative, and the Sustainability Study Centre of FGV (a Brazilian higher education institution) working together have convened the Natural Capital Declaration. Our thinking: financial institutions have considerable indirect ecological footprints through their customers and directly through their purchasing decisions - it makes sense that the institutions we go to for future wealth and security should invest in activities that protect, rather than erode, natural capital.
Signatories are committing to work towards ‘embedding’ or ‘integrating’ natural capital considerations into the decision-making processes of all financial products and services, including loans, investments and insurance policies.
Developing a workable methodology for financial institutions to account for natural capital is not going to be simple in practice – but we must move in this direction. What barriers should we expect and how can we overcome them? Could the shift by financial institutions to integrate natural capital accounting into decisions be the tipping point?