ENCORE: UN launches new tool to help banks and investors gauge their exposure to biodiversity destruction

A new tool has been launched to help banks and investors gauge the extent to which their agriculture and mining portfolios are driving species extinction and ecological destruction.

The ENCORE service has been launched today by the UN-backed Natural Capital Finance Alliance (NCFA) after being tested by more than 30 leading banks and investors, including Barclays, BNP Asset Management, and Natwest, according to an update from the group.

The free-to-use module has been designed to help financial institutions understand and curb the biodiversity risk of their mining and agriculture portfolios, the NCFA said. It is focused on mining and agriculture because those sectors take a major toll on the natural environment, while also being heavily dependent on nature.

Financial institutions are increasingly aware of the need to pivot their portfolios to curb escalating rates of nature loss, with the World Economic Forum estimating that half of the world's GDP is moderately or highly dependent on nature and its services. At the same time tackling biodiversity loss is rising up the global policy agenda ahead of the Kunming COP15 Biodiversity Summit in October, where leaders are expected to establish a new global biodiversity framework.

Corli Pretorius, deputy director of the UN Environment Programme's World Conservation Monitoring Centre, said ENCORE would allow the finance sector to gather a more detailed understanding of the symbiotic relationship between the economy and nature.

"Financial institutions are increasingly aware that biodiversity loss is an urgent issue they must tackle," she said. "The challenge has been to gain a more granular understanding of how biodiversity risks and opportunities show up in specific portfolios. Now, financial institutions can use the new module to understand the biodiversity risks and opportunities in their portfolios; they can prevent or account for the negative impacts on nature, while directing investments to better outcomes for people and planet."

On top of allowing investors to gauge their exposure to nature-related risks, the online resource allows investors to explore future scenarios and "explore potential pathways" to increase positive impacts within their portfolios, NCFA said.

The module also provides guidance for engagement with firms engaged in ecologically destructive activity, enabling financial players to push stakeholders to make their activities more nature-positive, it added.

Niki Mardas, executive director at Global Canopy, said the tool would plug an information gap that has to date stopped financial players from gauging the impact of their financed activities on nature.

"Data is key to unlocking finance sector action, and the missing link that financial institutions tell us they urgently need to shift their financing and investment away from nature-negative activities and towards nature-positive ones," she said. "The ENCORE tool has already been used by key finance sector players, like the Dutch Central Bank, to explore nature-related risks across entire markets."

The ENCORE tool has been funded by the Swiss State Secretariat for Economic Affairs, the MAVA foundation, the Swiss Federal Office for the Environment.

The tool is to launch in the same week as the UK-based Green Finance Institute has published a series of recommendations for how financial players and government can drive private capital away from nature-negative outcomes and towards nature-positive activities.

Among the 10 recommendations for the private sector are proposals for organisations to integrate nature-based risk assessment into decision making; prioritise action in sectors and geographies with the biggest exposure to risk; engage with sustainable supply chain certification schemes; collaborate on biodiversity finance initiatives; encourage greater use of green finance instruments; and support the growth of carbon offset market.

The checklist also urges the government to adopt national biodiversity targets and headlines, and to use public sector and philanthropic capital to crowd in private sector finance.

Green Finance Institute chief executive Rhian-Mari Thomas explained the documents had been produced in response to the Treasury-commissioned Dasgupta Review on the Economics of Biodiversity, published in February, which underscored the need for nature to be embedded into economic models.

"The Dasgupta Review is a call to action, highlighting that biodiversity loss is as big a risk as climate change in posing a threat to society, but also to financial stability," she said. "The financial sector, however, is only just beginning to recognise nature-based risk and the role of its institutions in supporting a nature-positive transition."

Thomas said the recommendations were designed to help the financial sector reduce its impact on biodiversity loss. "The pathway to action with its 12 recommendations acts as a starting point to help the sector embed nature within financial decision-making by recommending: how to begin to assess nature-related risk; which supporting policies to adopt; which products to develop; and the importance of addressing biodiversity loss holistically and in partnership," she said.

The green finance developments come as fresh figures from NGO Global Witness revealed that UK banks channelled more than £900m into 300 companies involved in sectors linked to deforestation such as palm oil, soy, and beef in 2020.

They also come the same week as a separate analysis from WWF and Greenpeace revealed that the UK's financial sector is responsible for nearly double its domestic emissions. The report, published on Monday, calculates that the UK's biggest banks and investors would rank ninth in the world for carbon emissions if they were a country.