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Natural capital: thinking beyond carbon in sustainable investing

Global views and trends

Robert-Alexandre POUJADE

Valuing the stock of renewable and non-renewable resources – our natural capital – adds another perspective to investment decisions, for example, in terms of the potential risks that ecosystem impairments present to the outlook for industries ranging from agriculture to tourism. Mapping natural capital dependencies matters to investors, argues Robert Poujade.

Valuing capital, be it cash, machinery or even human, is a mainstream practice, but regarding the natural environment through those glasses is less common, although impairments can have equally far-reaching consequences, also for investors.

Many companies engage in activities that depend or have an impact on natural capital, the stock of renewable and non-renewable natural resources that combine to yield a flow of benefits to people.[1] Think of plants and trees (e.g. for foods), animals (meat production), air (ventilation and energy), water (hydro-energy, cooling, beverages, clothing), soils (farming) or minerals (mining).

It should be clear that we rely on nature’s ecosystem services and resources to provide us with food, medicines or energy. For example, pollinators such as bees play a key part in 5%-8% of global food production.[2] Taken all together, the value of the total global ecosystem services has been estimated at USD 125 trillion per year, which is almost twice the world’s gross domestic product.[3]

We believe many investors today focus mainly on financial or social capital. Fortunately, however, there is a growing awareness of the need for sustainable investing (SRI), applying environmental, social and governance investment criteria (ESG) and contributing to the UN Sustainable Development Goals (SDGs). At BNP Paribas Asset Management, we believe we must engage all stakeholders to enhance the value of natural capital and protect it better.


Source: Clean Air Partnership  

Why it is important to take the natural capital perspective?

Is biodiversity relevant to us as investors? Do we need to care about the destruction of bee habitats or mangrove ecosystems? Does the severe bleaching of coral reefs matter for our investments? The answer is ‘yes’ when we are invested in agricultural supply chains or in tourism. It is not just that the loss of such natural ecosystem services is distressing, it has actual business consequences and hence it should be assigned a value.

So what type of natural capital risks do investors face? One is financial: the loss of ecosystem services comes at a cost, for example, investing in artificial pollination or dealing with land degradation or eutrophication. Another risk is linked to increasing environmental regulation: for example, mining projects in water-scarce areas can be delayed considerably because of unforeseen requirements on water desalination facilities. The other main risk is reputation: just think about the effects of consumer boycotts of companies involved in deforestation.


Mapping natural capital dependencies

This is why already in 2017, BNP Paribas Asset Management started to map its natural capital dependencies to find any hotspots of our investments so that they can be disclosed to clients and other stakeholders. This should further strengthen our ESG analysis of companies so that we can better assess the risks and the opportunities. And since the ESG scores are disseminated to all portfolio managers, this should raise fund manager awareness further and improve decision-making.[4]

Natural capital: a natural part of SRI and ESG investing and disclosure

ESG analysis has historically focused on carbon, while water issues are also relatively well monitored. In our view, other key categories are not adequately assessed today. Think of biodiversity and soil. We believe the investment community should engage with companies to improve their disclosure on natural capital impact drivers and dependencies.

In our own assessment, we focused on water. We have just published the case study on the Natural Capital Coalition Hub.[5] In the study, we were surprised to see the low level of disclosure by companies on water quality indicators. Our answer is to start a conversation with mining or cement companies focusing on how they integrate water in their decision-making.

We have been disclosing our impact on the climate by publishing, for example, the carbon footprint of portfolios or our 2°C strategy. We believe the time has come for the investment community to think beyond carbon. Natural capital is gaining momentum at BNP Paribas Asset Management. We encourage the industry to engage with companies on the topic of natural capital.

At BNP Paribas Asset Management, we want to take into account the notion of natural capital in our investment decisions. As part of our activities to raise awareness, we have published a case study on water with the Natural Capital Coalition, conducted by Robert-Alexandre Poujade and Thibaud Clisson, both members of our team of Environmental, Social and Governance (ESG) analysts. Find out more:

[1] Natural Capital Coalition 2016a;

[2] IPBES, The assessment report on pollinators, pollination and food production, p22.

[3] Constanza et al, 2014

[4] Since 2002, BNPP AM has been a major player in sustainable and responsible investing, with EUR 35 billion in SRI assets and EUR 230 billion of assets that take into account ESG criteria as at 31 December 2017.


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