Guide to Help Financial Institutions Assess Natural Capital Risk In Agriculture

The Natural Capital Finance Alliance has released Natural Capital Credit Risk Assessment in Agricultural Lending, a new template that enables financial institutions to conduct natural capital credit risk assessment across different agricultural sectors and geographies. Although most banks still lend to farmers almost solely on the basis of their most recent profit and loss accounts, lenders should recognize that performance can be improved over the short-term in an unsustainable way, but this can create medium-term risks such as degradation of land and water. The new approach outlined in this guide provides a global template for natural capital credit risk assessment that takes into account factors such as water availability, use and quality; soil health; biodiversity; energy use and greenhouse-gas emissions. The approach is designed to be consistent with the leading international standard for including natural capital in business decision-making, the Natural Capital Protocol.