37 finance CEOs announce commitment on natural capital at Rio+20

Government delegates from all over the world, private institutions and NGOs alike are about to rally this week for the next United Nations Conference on Sustainable Development in Rio de Janeiro, popularly known as Rio+20. The Conference will focus on two themes: (a) a green economy in the context of sustainable development poverty eradication; and (b) the institutional framework for sustainable development. Confronted with a deepening eurocrisis and widening inequality around the world, many people do not expect more than a lot of „thin air“ out of the conference. 20 years, after the first global climate conference took place in Rio, the follow-ups in Kyoto, Copenhagen, Cancun, and Durban have proved the skeptics right.

So, what can we expect from Rio+20? Specifically, what can we expect from the financial services sector, a field associated with „an amoral world, bordering on the immoral“?

Mind you, in the wake of Rio+20, 37 finance CEO’s have committed to integrate natural capital considerations into their business activities. You can read the complete Natural Capital Declaration here. Is this yet another attempt to greenwash their indecent activities that usually range from financing SUV’s for city dwellers to funding deforestation of whole areas? Promptly, Banktrack, a network of NGO’s tracking the business activities and investments of private sector banks, has sharply criticized the declaration in a position paper as being “fatally flawed”.

It is true, BankTrack is right to criticize the declaration. There’s a lot of political blahblah in the text. It is very vague and has more questions than answers or actions. Responsibility is treated like a “hot potato”. Above all, the financial sector denies every pro-active activity except the declaration but calls for the governments to act and implement the framework to treat natural capital in the right way. This line of argument, for sure, helps them a lot to stay on the safe side of inactivism for a long time. Governments all have their own little national agendas and the last 40 years in energy and climate politics have shown that global challenges come last when a re-election is at stake.

What’s the core concept of the Natural Capital Declaration? It is a concept bankers do understand well: neglecting negative external effects lead to a wrong pricing. The bankers wish to treat natural capital as an asset and aim at valuing its use (or lack thereof) by internalizing the costs that may depreciate it. As long as natural capital is not correctly priced, market inefficiencies prevail. For ideological reasons, BankTrack rejects this market-oriented concept (“We need more Nature without Capital”), which the financial sector deems to be a useful means to integrate natural capital considerations into their products and services. This is the decisive argument that I do not understand in BankTrack’s criticism. They repeat it over and over again as if business activities and sustainability aims excluded each other per se. Pricing natural capital does not mean, it is for sale, eventually leading to its commodification and financialisation, but it is the “risk premium” to pay if banks continued to finance unsustainable projects. Many concerns remain, e.g., how to set the prices and how to oversee them to avoid that irreparable damage to the environment is done. Alas, today’s flashy CSR reports tell us very little about the overdue risk premium in the banks‘ loan books; plain natural capital accounting might help to change this specific kind of risk management.

Making the price of natural capital in a bank’s decision-making process transparent would also help an interested customer to choose the bank that fulfills the standards given in this declaration and leave the others behind. It might, thus, turn into a competitive advantage.

What do you think about the Natural Capital Declaration? Is it a fake commitment? Or is it rather a good first step in the right direction? Please, let me know in your comments or on Twitter: @nachrichtenlos

Further links:

Nigel Cameron: Global Risk, Planetary Pressure, and Rolling down to Rio(+20)
Demystifying natural capital-accounting (World Bank blogs)
New Capital Declaration on Twitter
BankTrack on Twitter


Bärbel Bohr (https://twitter.com/nachrichtenlos)


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