"Invisible" nature key to global economy: U.N.

SINGAPORE Tue Oct 12, 2010 12:17am EDT

SINGAPORE (Reuters) - Nature is not just about fluffy animals or brightly colored frogs -- it's central to the health of businesses that need to incorporate environmental impacts into their risk management, a senior United Nations official said.

Such an approach should be obvious, said Richard Burrett, co-chair of the United Nations Environment Programme's Finance Initiative, yet nature remains essentially invisible to many people and companies, particularly in urban centers.

"All financial and economic capital, is derived from natural capital," Burrett told Reuters ahead of a major U.N. conference from October 18 in Japan that aims to set new targets to combat accelerating loss of plant and animal species.

"We act as if we have endless abundance of natural capital to underpin our global economic activity, yet it's clear that we're degrading it at a phenomenally fast rate," said Burrett, a former global head of project finance for ABN AMRO and now a partner at investment advisory firm Earth Capital Partners.

Impacts on nature needed to be measured and managed right through the supply chain, he said.

But accounting systems needed to be refocused to fully calculate environmental degradation caused by economic development. Failure to do so meant companies were not measuring the balance sheet and profit and loss accurately, he added.

"I think the companies that really understand their ecological footprint and can manage it in all aspects of their business will be better positioned," he said, adding this was not just about reputational risk but future regulatory risk.

The UNEP Finance Initiative draws in nearly 200 financial institutions such as banks, asset managers, pension funds and insurers to promote environmentally friendly investment principles to help the finance sector change the way it works.

"Rewiring our system is the key thing and it's trying to make sure we genuinely understand the risk agenda," Burrett said.

SYSTEMIC RISK

The past three years had shown how little the financial sector understood systemic risk. The global financial crisis had shown that the sector had failed to grasp the risks it was creating, he said.

The United Nations and green groups say a price needs to be placed on all the services that nature provides, from clean air and water from forests, fish from coral reefs and oceans, pollination of crops by bees to healthy soils to grow food.

About a billion people rely on coral reefs and mangroves, which are vital fish nurseries that replenish fish stocks, a major source of protein.

Yet many of these ecosystems are in decline because of pollution, deforestation and expansion of agriculture, over-hunting and the impacts of climate change.

The world body says it is critical to put the brakes on the loss of plants and animals since the richness of species is central to the health of ecosystems.

Burrett said the devastation wrought by the oil spill in the Gulf of Mexico and Australia's decision to slash water extraction from the Murray-Darling river system highlighted the central role nature played and how impacts on ecosystems needed to be managed.

The Australian government said last week farmers in the prime agricultural Murray-Darling river basin would lose more than a third of irrigated water to try to restore ailing rivers and survive future droughts caused by climate-change.

Burrett said banks, asset managers, pension funds and insurers were already starting to change their investment practices with new environmental and social standards guiding money for project finance.

But he said it was industries that had the greatest impact, such as miners, logging firms, food and pharmaceutical companies.

Some were managing their environmental risks, such as insisting on using only sustainable palm oil.

"There are some positive signs but it's very fledgling."

(Editing by Alex Richardson)

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