Natural Capital & Finance in India

India’s financial system is significantly exposed to natural capital risks as many sectors, which banks and pension funds finance, are heavily reliant on natural resources. This initiative aims at providing financial institutions in India with an understanding of the relevance and magnitude of the natural capital risks they are exposed to and to equip them with adequate tools and capacities to integrate such risks into their lending and investment decision-making.

The report – Natural Capital Risk Exposure of the Financial Sector in India – conducted by Trucost revealed that the annual natural capital costs caused by companies, which are financed by Indian banks, amount to INR 90.5 trillion – equivalent to 2.9 times the credit provided to these companies. Sectors with the highest natural capital costs include food, power and agriculture. The main factors pushing these costs are water consumption, land use and greenhouse gas emissions. If companies had to pay for their respective natural capital costs, for instance in the event of droughts or changes in the regulatory framework, it could significantly impact their ability to repay loans. To mitigate related risks, the report demonstrates how natural capital costs can be quantified and integrated into a bank’s portfolio valuation and credit risk assessment.

Resources

• Report: Natural Capital Risk Exposure of the Financial Sector in India (Oct 2015)

Events

• Symposium: Natural Capital: Relevance to Financial Institutions in Emerging Economies (6 Nov 2015, Mumbai). The symposium served to present and discuss the results of the report. It focused on environmental risk management of financial institutions in India as well as the management of water risks.
• Conference: Natural Capital: Relevance to Financial Institutions in Emerging Economies (14 Nov 2014, Mumbai). The conference addressed the senior management of financial institutions to raise their awareness of the relevance of integrating natural capital considerations into business operations.

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