Five steps on natural capital
Leadership: The world needs new leaders to take forward what some have called “a revolution in the global economy”. We work with CEOs and senior managers to mentor this process and help define what leadership in this complex and emerging field looks like: for your team, for your clients, for those who are measuring your performance and the young leaders of tomorrow, whom you may wish to attract and keep.
Understanding: What does it mean to be a responsible investor or lender? How should you respond to growing calls for divestment from fossil fuels? Are you invested in companies with supply chains dependent on nature or that could alter landscapes? Is your reputation at risk? How will future regulation change the environment in which you deploy capital? Do your loans or investments, pollute water-courses, undermine food security, drive environmental degradation? Is your licence to operate at risk? How could any of this have a material impact on your business?
Strategy: We help your senior managers understand emerging risks related to natural capital and future opportunities gained by enlightened investment and lending strategies. That means taking account of direct and indirect impacts on natural capital through your investments, lending.
Everyone’s business is different, whether you operate in the UK or worldwide. A Pension fund will need to develop a different strategy on natural capital to a Hedge Fund, because of their different investment horizon or asset focus. An insurer may have excellent policies relating to underwriting risks but weak policies related to its own investment strategy. Family Foundations may think carefully about the environmental impact of their grants, but fail to do the same with their investments.
Policy Development: This usually is the first tangible step. Your policy can be internal or public facing. Defining it depends on completing the steps above. We will take you through the guidance already available, identify what sector best practice looks like and develop policies tailored to your own needs.
Tools: If you look inside a Bloomberg terminal you won’t find much data on natural capital or spread sheets to help you make investment decisions. So what tools are available? We can introduce the growing range of portfolio screening and environmental stress testing tools across carbon, water, supply chains, and energy that are coming on stream.
Engagement: Your impacts and opportunities will mostly lie within the entities you invest in or lend to. Becoming ‘active owners or lenders’ offers opportunities to influence behaviour within your “value chain”. How far should you go? Within just your own company or engage those you directly own or lend to? Or go further to engage third tier relationships within third party financial value chains? We can help you develop or adapt your engagement capability, directly or though out sourcing, related to these issues.
Support: How can this approach become embedded in the core thinking of your organisation? How should investment mandates, performance indicators and incentive structures be adapted to deliver on the policies adopted? We can help deliver your own ESG expectations in this area and apply intelligence on emerging regulatory and policy developments that may impact your investment time horizons in the future.
Benchmarking: How can you benchmark your performance in this emerging area? The financial sector is increasingly being held to account for its ESG performance. Environmental degradation, social injustice, child labour, transparency, sustainability are all areas that need to be monitored internally. External benchmarking tools are also proliferating where others will judge your efforts related not only to management of financial capital, but on natural and social capital value creation as well.
Verification: Whose information van you rely upon? Whom should you trust to engage with your clients in this field? Where environmental ‘externalities’ are concerned, the price signal can become confusing depending on whose data you use. We offer expertise to identify the best sources and providers who can help you develop methods for designing your own tailored monitoring process.
Transparency: What level of transparency are you comfortable with? Are regulators likely to increase what is required in relation to ESG and natural capital in particular? What reporting frameworks are out there? We can help you develop your own reporting strategy that reflects best practice and offers integrity that reflects the new norms to come.
Disclosure: What kinds of standardised reporting should you be asking for? What tools and reports should your clients be using and making available to you? How can you know that they are adopting codes of practice and are adhering to their use? Should you be filing shareholder resolutions demanding disclosure?
Change: To what extent should you encourage others to make the change? How important is a level playing field? Should you be communicating with beneficiaries and disclosing what is required on these ESG issues, investigating impact, reporting on progress and the benefits attained, to help raise awareness among the broad range of stakeholders needed?