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ENCORE for Nature – a US$1.6tn opportunity

ENCORE launched in the Old Paris stock exchange – The Bourse. A new kind of capitalism emerges.

ENCORE – the world’s first comprehensive tool linking environmental change to its consequences for the economy, has been launched by the Natural Capital Finance Alliance (NCFA). It allows financial institutions to become more proactive about their opportunities and risks related to nature. Analysis using NCFA’s tool reveals that FTSE100 firms could collectively protect $1.6tn of market capital if they can understand their dependencies on natural capital better and factor this into their decision-making.

So how are FIs linked to nature? Sometimes the answer is obvious. Banks, seeing farmers without rain, may calculate how many will fail to payback loans. Trade finance spotting drying rivers can reprice Brazilian soy feedstock, unable to be transported to global markets. Insurers can price real estate loss from floods and tsunamis. Catastrophe risk is now quite well known, and quantifiable. What’s missing is a much deeper understanding of what financial impacts will happen and where, when the systemic ecosystem services that financial institutions are linked to, through their lending or Investment portfolios, become erratic, unpredictable or gradually vanish all together.

At present I find among many major FIs, at best a lack of understanding and at worst complacency, about the scale of the natural capital impacts they are connected to. In part this is because, until now, there has been no easy method of making the ‘eco’ in Economy, visible to FIs. You won’t find much data about natural capital inside a Bloomberg terminal. The new tool, ENCORE enables FIs to Explore Natural Capital Opportunities Risks and Exposure. It fosters collaborative work across internal teams. It means that no Head of Risk can in the future say, “I didn’t know”.

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