Natural capital is the stock of natural resources, including land, air, water and living organisms, which yield goods and services thereby providing inputs, both directly and indirectly, to businesses and society.
The Natural Capital Declaration (NCD) is a global initiative run for financial institutions that aims to price in the full value of natural capital into the global economy, based on the premise the health and viability of natural capital underpins all human economic activity.
VicSuper is the first super fund in Australia to become a signatory of the NCD, a move it says has given it access to industry leading tools and assessment methodologies, helping it to focus its investments decisions in sectors and industries. In particular, considerations of natural capital has helped the fund make more informed investment decisions in terms of understanding the risk profile of the assets with which various businesses were operating.
“It highlights potential new opportunities through a whole range of things; whether that is renewables, or the use of assets being changed by technology, or the creation of new and emerging investment opportunities,” says Michael Dundon, chief executive of VicSuper.
He added the fund had always thought natural capital was an undervalued asset in the economy and because of this it had been doing a range of work, with the Future Economy Group, around natural capital, its relationship to industry, economic benefit and to jobs, particularly in the state of Victoria.
“What stood out for us was how critical it was to understand the value of natural capital and how to protect it, how to enhance it, and what opportunities it would provide for job creation,” Dundon says.
He added it gave the fund a stronger appreciation of the types of ESG issues that can emerge – issues he wants investment managers to be considering when looking at opportunities.
“It also gives us a better sense – when you look at the Natural Capital Declaration itself – of the types of organisations that are involved in it, giving us a hint of their approach to the environment and how they might utilise assets.”
Kirsten Simpson, manager corporate responsibility at VicSuper, said Bloomberg, a sponsor of the NCD, had recently launched a water risk assessment tool which she was able to take to the investment team enabling them to have conversations with the fund’s investment managers about water risk – an important consideration given VicSuper’s investment in the agricultural sector.
Simpson is also the vice-chair of one the NCD’s working groups which has the goal of contributing to the development of a global disclosure framework and guidance for financial institutions on natural capital.
“A lot of the work is at the investment manager level, making sure they have the tools to make informed, rounded and holistic decisions on our behalf,” she says. “And for those funds that have inhouse investment managers they will be able to use the tools too.”