Publication / 22 Apr 2016

Accounting for Natural Capital Costs Associated with Chinese Financial Institutions

Trucost has developed a natural capital analysis tool to help Chinese banks and investors understand the natural capital implications of their financing activities.

China has enjoyed increased prosperity as a result of having one of the fastest growing economies in the world. However, this growth has been highly dependent on the consumption of natural resources to support a strong manufacturing-based economy.

The result has been increased environmental impacts which have severely compromised the sustainability of the country. These impacts have recently received considerable public and government attention, leading to more stringent environmental laws and sector-specific regulations, which translate environmental impacts into material financial risks for Chinese businesses. In turn, Chinese financial institutions are exposed to these risks through their investment and lending activities.

To help Chinese financial institutions manage their exposures to environmental impacts, Trucost has developed a model quantifying natural capital costs within 35 business sectors in China, selected in collaboration with project partner the Industrial and Commercial Bank of China. This model covers six major environmental key performance indicators, and is able to quantify environmental impacts in monetary terms. This model attributes these natural capital costs to the portfolios of the financial institutions through their equity or loan exposures to these sectors.

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