Connecting Finance and Natural Capital: A Supplement to the Natural Capital Protocol

‘Connecting Finance and Natural Capital: A Supplement to the Natural Capital Protocol’ (the Supplement) provides a framework for financial institutions (FIs) to assess the natural capital impacts and dependencies of their investments and portfolios.

This framework has been developed by the Natural Capital Coalition (the Coalition), Natural Capital Finance Alliance (NCFA) and the Dutch SIF VBDO. The Supplement was developed against the backdrop of growing acknowledgment that the natural systems that underpin the global economy are deteriorating past the point of effective service provision, and that this will have potentially significant consequences for many businesses, and subsequently, for those who have financed or insured them.

The Supplement will guide FIs through the process of identifying, measuring and valuing material risks and opportunities as a means of informing financial decision making.

A growing number of financial institutions are recognising the importance of understanding these complex relationships with nature and natural systems. However, much of this understanding centres on specific issues – such as forests, water, climate change or energy – and on the impacts that their portfolios are having on the health of natural capital stocks, rather than their dependency on natural capital and ecosystem service flows, which are more directly material to investment risk and returns.

Robert-Alexandre Poujade, BNP Paribas Asset Management said: “At BNP Paribas Asset Management, we are very happy to support the Natural Capital Protocol, and the Coalition’s fantastic work to move natural capital higher on companies’ agendas. Today, we have contributed by publishing a case study, focusing on our engagement with companies regarding their consumption of water. Rest assured that this is not a one off, and that we will continue to increase awareness among all of our stakeholders to protect natural capital.”

Namita Vikas, Group President & Global Head – Climate Strategy and Responsible Banking, YES BANK said; “Our participation in the development of Finance Sector Supplement to the Natural Capital Protocol has allowed us to apply this methodology to YES Bank assured green bonds, and to measure the impacts and dependencies of the projects which these bonds have financed. This process has allowed us to improve existing risk mitigation measures and to assess the impacts we are having through the lending of these assets. I would urge other financial institutions to use the Natural Capital Coalition’s Protocol, sector guides and Supplements. They have helped us to assess risks, highlight opportunities and build on our overall organizational strategy.”

Stranded assets

This Supplement will allow financial institutions to take a more integrated systems approach to natural capital impacts and dependencies. For instance, overconsumption of water can lead assets such as mines, factories or power plants to become ‘stranded’, while corresponding droughts can impact crop yields and necessitate livestock culls which will affect the price of commodities and raw materials. The effects of these shocks can be significant and wide-ranging, but understood in context of the wider system, can be addressed as part of a unified strategy.

This natural capital approach is designed to generate trusted, credible, and actionable information that can be used to inform decisions around operational, market, reputational, and societal risks. It can also be used to identify and unlock opportunities for innovative solutions in a changing market.

The launch of this guidance has been supported by a series of case studies from leading FIs including: ASN Bank, Bankinter, BNP Paribas Assets Management, Kepler Chevreux, Piraeus Bank and YES Bank.

The Supplement has been designed to align with other initiatives such as the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, which can be implemented alongside the Supplement.

This Supplement is based on the framework of the Natural Capital Protocol, a standard decision-making process written for business, made up of four stages covering ‘why’, ‘what’, ‘how’, and ‘what next’. This document builds on the Protocol, providing sector- specific guidance to make the Protocol more applicable and practical for financial institutions.

In the Supplement, each Stage asks specific questions and provides guidance on how to answer them. At the end of each Stage is a list of typical outputs (see figure 0.1).

Finance activities covered

This Supplement covers banking, investment, and insurance activities within the nance sector, with a speci c focus on the following activities:

  • Banking: Project finance, corporate lending, and underwriting
  • Investment: Investment across the range of asset classes (e.g., equities, corporate bonds, sovereign bonds, property, private equity, infrastructure), active ownership (engagement), and impact investing
  • Insurance: Corporate underwriting and reinsurance, with investment management activities covered under investment

The Supplement provides a framework for financial institutions to assess the natural capital impacts and dependencies of the entities and portfolios that they support. These impacts and dependencies represent an indirect relationship to natural capital on the part of the financial institution. If you are looking to identify, measure, and value your institution’s direct impacts and/or dependencies (e.g., office materials, travel, and energy use), you should apply the Natural Capital Protocol rather than this Supplement.


This Supplement is aimed primarily at ESG analysts, environmental managers, responsible investment managers, due diligence specialists, risk managers, analysts, and portfolio managers working in financial institutions.

Natural capital thinking can play an important role in informing strategic decisions, and it is therefore important to engage across the financial institution.