A writeup discussing natural capital valuations and its applicability in aligning financial services/sustainability.

1. Ryan Arnez Monroe
AJF Financial Services, Inc
29 June 2016
Banking and Sustainability
In the previous section of the SIPC course I reviewed the Corporate Social Responsibility report of TD Bank Group,
which has an exceptional track record as it pertains to environmental stewardship.Throughout the review I found
myself intrigued by the idea of assigning values to natural capital and applying them to banking relationships.
Section five of the SIPC course provides the ideal medium to analyze “natural capital” as a concept; reviewing the
work TD Bank Group/peer financial services institutions while making the case being great environmental stewards
and a provider of financial services aren’t antithetical to each other.
Natural Capital Evaluations and Financial Services
I’ve worked in financial services for over a decade, and will candidly admit I never heard of the concept of natural
capital until reading TD Bank Group’s CSR for the last module. I found myself immensely fascinated by concept
and noted the plethora of resources TD contributed to the topic. TD Bank Group embedded a video of their Chief
Environmental Officer Karen Clark-Whistler speaking about how this concept influences their decision making
processi.
TD Bank Group has written more about natural capital and has availed the public to real time business cases that
supports its efficacy in business decision-making process than any otherfinancial service institution in North
America if not the entire world.ii Natural Capital at the high level:
 Refers to the financial value provided by natural resources and ecosystems; naturalcapital can be measured
in terms of economic value, environmental and/or social benefits.
 Provides enormous measurable benefits each year and including natural capital valuations in decisions can
help individuals, firms and governments to better understand the true costs,benefits and return on
investments of planned activities.
 Can also provide options and alternatives that are not apparent when traditional thinking is used.
How does one precisely go about calculating the value of natural capital? There isn’t a universally accepted standard
at this point, but there is a well-established precedent of starting with the Total Economic Value. The Total
Economic Value is used to classify different values that a resource may provide and ensure the majority of benefits
and values are being captured.The basic equation is as follows:
Total Economic Value = Direct Use Values + Indirect Use Values + Non-Use Values
 Direct Use Values are those that most closely match the values associated with traditional forms of capital.
 Indirect Use Values derive from the existence of natural capital, but don’t require consumption.
 Non-Use Values are those related to the option of being able to defer consumption in the future or simply
the existence of the natural capital.
TD Economics provided a case study in their CSR discussing the TEV of Toronto’s urban forest that I found
fascinating.iii According to TD Economics the trees in The City of Toronto are worth an estimated $7 billion dollars,
or about $700/tree and provides residences with environmental benefits/cost savings ofabout $8/tree. The most
commonly identifiable part of a tree would be the lumber that can be produced/consumed; trees also reduce strain on
water transportation,reduce air pollution from the air, provide natural shading,remove carbon from the air and in
turn reduce net carbon contributions to the atmosphere; biodiversity provides valuable ecosystemservices free of
charge that too often are considered subordinate to their primary commercial application.
A tree isn’t just an overgrown plant to be cut down for timber, but provides tangible economic value; this
paraphrasing speaks to the core definition of natural capital, potential! Many of our natural resources have a
financial value now and in the future; what if financial services institutions led the paradigm shift of viewing “tree

2. just as timber” to thinking about its potential? This innocuous action in and of itself could have a profound impact
on current consumption and future value of these resources.
The financial services industry is starting to ask questions about biodiversity/ecosystems and investors are exploring
new opportunities linked to biodiversity/ecosystemservices all of which bode well for furthering the links between
the expanded adaption of natural capital valuations within the financial industry, lending/financing decisions
concentric to the valuations and taking leadership in furthering the drive for sustainabilityiv.
How can natural capital valuations help guide future lending/financing decisions and build a more
environmentally sustainable economy?
I’m fairly certain that the preceding section did a good job of defining natural capital in theory,now the fun part is
delving into is application. In the preceding section I alluded to natural resources’potential as being something we
should not take lightly. If natural capital valuations became a uniform standard of measure across the financial
services industry, its almost certain the scope of which we view all things pertaining to nature/ourfuture would shift
overnight. The burden of this paradigm shift can’t fall on the financial institutions solely; governments, private
corporations and individuals need to have skin in the game as well.
Most major financial institutions are contributing to the concept of sustainability on some level, although some are
making a more consistent effort than others. Quickly referencing TD Bank Group, their sustainability
reporting/actions illustrates the multiplier effect of these efforts when there’s a clear directive from the C-Suite
coupled with financial commitment to implementation. Financial Institutions,more often than not, do things out of
habit and shy away from reinventing the wheel unless there is a financial, business and/orinnovative reason to do
so. What incentive do financial institutions have to increase the focus on “sustainability” when shareholders demand
profit above all other things? The previous statement clearly deploys levity, its long established that the needs of all
various stakeholders aren’t subjugated to the needs of the one who solely demands profits. According to an article
written by George Serafeim for the Harvard Business Review the fastest growing cause for concern for shareholders
is sustainability.v Shareholders are empowering financial institutions to develop concrete sustainability
plans/processes fortheir respective institutions and the populations they serve accordingly. Shareholders are giving
the green light, the onus is on financial institutions to think big and go bold; this is where natural capital valuations
has the potential to be a game changer.
Lending/financing decisions based on the incorporation of natural capital valuations would have instant real world
impact. Conceptualizing this isn’t that far fetched, a similar phenomenon has occurred in the coal industry
worldwide. Financial institutions determined financing coal related projects aren’t financial feasible anymore and
has lead to the precipitous decline of an industry (which has been antithetical to environmental sustainability) that
regulation never could.vi The collective reduction in financing may not be attributable to environmental impact in
some cases,but the principal of financial institutions acting in concert provides the template for how a world, where
financial institutions have fully embedded natural capital valuations could look. The universal adaption of natural
capital valuations by financial institutions could mean:
1. Once the total economic value of a resource is determined, accepted and made public by all adapters the
business case for exhausting that resource in the present would be hard to justify.
2. There would be little economic incentive for a financial institution to act out of unison with others; if
sustainability is important to shareholders as empirical data seems to imply, one would expect a financial
institution’s stock price to be impacted negatively accordingly.
3. Companies that consume natural resources would have to adapt/innovate, find alternative methods or loose
access to financing of such endeavors.
If all of these forces were to conspire, its not hard to imagine a snowball like scenario where less natural resources
are consumed/used in a myriad of outputs and innovation/economic activity is created in the pursuit of finding
alternatives to consuming said natural resources.
Natural Capital Declaration

3. Many of the ideas written above are not necessarily ones that exist in the complete abstract. An initiative known as
the Natural Capital Declaration exists and provides a great start to forging universal adaption of natural capital
valuations within the global financial services sector.
The Natural Capital Declarationvii was launched at the UN Conference on Sustainable Development (Rio+20) in
2012. The Natural Capital Declaration (NCD) is a finance sectorinitiative, endorsed at CEO-level, to integrate
natural capital considerations into loans, equity, fixed income and insurance products,as well as in accounting,
disclosure and reporting frameworks. The initiative has been signed by the CEOs of more than 40 financial
institutions,and demonstrates their commitment to the integration of natural capital considerations into private
sectorreporting, accounting and decision-making by 2020. Signatory financial institutions are working alongside
supporterorganizations to develop metrics and tools to help incorporate natural capital factors across their
businesses.The NCD was signed twenty years after the first Earth Summit in Rio De Janeiro, Brazil.
The Natural Capital Declaration is an important first step,but its just the first of many steps necessary to forging the
universal adaption of natural capital valuations within the global financial services industry. As of now only forty
financial institutions have become signatories,Citigroup is the only North American based financial services giant
that has become a signatory. This in and of itself proves there is a long road to be travelled.
"Wall Street can only make a difference on this stuff if we figure out a way to make money on it, it has to move the
needle” viii
-Matthew Arnold, managing director and head of environmental affairs for JPMorgan Chase."
”This stuff” being natural capital valuations; this statement was made in 2013, only a year after the ratification of the
NCD. A year later JPMorgan and The Nature Conservancy announced a $1B initiative to finance projects that
protect agriculture, fisheries water and land.ix This about face in a short amount of time highlights should give us
hope and showhow much change can occur when capital and will follow in tandem.
Summation
I’ve discussed the role financial institutions play in this symbiosis, its just as important that governments and
individuals put skin in the game if were serious about the potential efficacy of incorporating natural capital
valuations into our general lexicon.
Natural capital for all intents and purposes are considered apart of the common ownership of all and “free” to all to
use.Governments have legislative powers to create a framework for rules/regulations that can incentive financial
institutions to operate in a responsible and sustainable manner. Individuals can empower themselves to A) learn
about the importance of natural capital valuations B) inquire if companies they’re supporting integrate natural
capital valuation’s within their supply chain/manufacturing decisions [or have plans to do so in the near future] and
C) support organizations that push for universal adaption within the global financial services industry.
Financial institutions are integral to every facet of life in a functioning interconnected global economy; as such these
institutions wield an outsized influence due to their scale and reach. With great power comes great responsibility, it
is every stakeholders duty to ensure these institutions are deploying every reasonable measure to ensure continuity
and the sustainability of our finite resources.

4. Endnotes
i Karen Clark-Whistler Video via TD’s CSR http://www.td.com/corporate-responsibility/video/index.jsp#20
ii Valuing the world around us: An Introduction To Natural Capital
http://www.td.com/document/PDF/economics/special/NaturalCapital.pdf
iii Urban Forests: The Value of Trees in The City of Toronto
https://www.td.com/document/PDF/economics/special/UrbanForests.pdf
iv TEEB for Business Exec Summary
http://bench.concordia.ca/sipc/pluginfile.php/3160/mod_resource/content/2/TEEB%20for%20Business%20Exec%2
0Summary.pdf
v George Serafeim’s article for Harvard Business Review https://hbr.org/2016/07/the-fastest-growing-cause-for-
shareholders-is-sustainability
vi JPMorgan pulls financing for coal http://www.nytimes.com/2016/03/21/business/dealbook/as-coals-future-grows-
murkier-banks-pull-financing.html?_r=0
vii Natural Capital Declaration http://www.naturalcapitaldeclaration.org/wp-content/uploads/2013/12/The-Natural-
Capital-Declaration-EN.pdf
viii JPMorgan Chase, UBS assess risks to tally natural capital costs
https://www.greenbiz.com/news/2013/02/21/jpmorganchase-ubs-assess-risks-tally-natural-capital-costs
ix Why TNC and JPMorgan Chase are investing $1 billion in nature
https://www.greenbiz.com/blog/2014/04/29/nature-conservancy-and-jpmorgan-chase