Businesses and financial institutions now have an opportunity to gain an even greater understanding of their vital relationships with nature, following a major update to ENCORE, a leading UN-backed tool for screening risks to natural capital.
Since the launch of the Taskforce on Nature-related Financial Disclosures (TNFD) Final Recommendations to help businesses and financial institutions globally assess and disclose their relationship with nature, companies and financial institutions have been updating their business strategies with plans to report on and mitigate their reliance and impact on nature. To support organisations with nature-related issues as they start to adopt the TNFD recommendations, the ENCORE tool (Exploring Natural Capital Opportunities, Risks and Exposure), enables them to obtain a more detailed screening of their potential impacts and dependencies on nature.
ENCORE is a collaboration between Global Canopy, the UNEP Finance Initiative and the UN Environment Programme World Conservation Monitoring Centre (UNEP-WCMC). It launched in 2018 to help financial institutions and companies understand how their activities rely on nature. The tool’s functionality was extended in 2019 to additionally enable them to assess their impacts on nature. ENCORE is now frequently referenced by the TNFD, Science Based Targets Network, Global Reporting Initiative and other corporate assessment and disclosure frameworks as a leading tool for business reporting.
The new enhancements are underpinned by the latest scientific research and driven by feedback from ENCORE users that are leading the way on the assessment of nature-related risks.
The update includes seven key improvements:
- Expansion of the previous list of 92 ‘production processes’ to 271 ‘economic activities’, catalogued by the globally recognised International Standard Industrial Classification for All Economic Activities (ISIC). These economic activities, ranging from livestock farming to the manufacture of chemicals and nuclear power production, offer a more detailed breakdown on economic sectors.
- The list of ecosystem services is now better aligned with the categorisation proposed by the UN’s System of Environmental Economic Accounting - Ecosystem Accounting. Cultural Ecosystem Services - such as recreation, aesthetic appeal, education, and spiritual, artistic and symbolic services - which were previously not included in ENCORE, have been added.
- Improved clarity on how economic activities can impact nature, enabling users to gain more actionable insights.
- Natural capital is now separated into different ecosystem types aligned with the IUCN Global Ecosystem Typology 2.0. This will help users better understand how impacts and dependencies may vary based on where they are located.
- All data on impacts and dependencies of economic activities have been updated based on the latest scientific research, industry expert reviews and grey literature, such as company sustainability reports, organisations’ websites and industry news.
- Improved methodology of the materiality ratings (which indicate how significant potential dependencies are, and how much pressure economic activities have on nature) to enable comparisons across economic activities and sectors. Where possible, these materiality ratings draw on quantitative indicators.
- New information has been added on key value chain links covering two tiers of suppliers and two tiers of consumers for each economic activity, enabling users to see their indirect nature-related impacts and dependencies.
- The updates, particularly the qualitative descriptions, the value chain links and the materiality ratings, have been reviewed by 78 industry experts representing 14 out of the 21 ISIC sections (level 1).
- The improvements to the knowledge base behind ENCORE enable users to explore their use of, and dependency on, nature in greater detail than before. The expert technical research behind the knowledge base update revealed more than 10,000 links between economic activities and ecosystem services, and economic activities and pressures. The updated knowledge base can now be downloaded by ENCORE users running analysis on their activities.
Example: How a business might use ENCORE’s updates
A major cheese manufacturing company is preparing for its nature-related disclosures. They follow the Locate – Evaluate – Assess – Prepare (LEAP) approach recommended by the TNFD to structure their assessment of nature-related dependencies, impacts, risks and opportunities. ENCORE provides a long list of potential dependencies and pressures / impact drivers, which can be used for scoping an assessment and for the Locate phase of LEAP. Prior to the update of ENCORE, the company used data for the production process Processed food and drink production. Now it can find in ENCORE the ISIC group where it belongs – Manufacture of dairy products. The company can see that this economic activity is dependent on 14 out of the total 25 ecosystem services, and that it exerts 8 out of 13 pressures on nature. Each dependency and pressure is assigned a materiality rating from Very Low to Very High, which the company can use to prioritise its assessment. The updated ENCORE knowledge base also provides information on key value chain links for this economic activity, allowing the company to start exploring what dependencies and impacts it may have through its value chain. The outputs from ENCORE indicate potential dependencies and impacts and serve as the basis for the Evaluate phase of LEAP where the company contextualises them and measures its actual dependencies and impacts.
Example: How a bank might use ENCORE’s updates
A bank is looking to understand the nature dependencies and pressures associated with its portfolio of investments in agriculture. Prior to the ENCORE update, the bank would be able to analyse dependencies and pressures associated with primary production of agricultural crops using four production processes: Large-scale irrigated arable crops, Large-scale rainfed arable crops, Small-scale irrigated arable crops and Small-scale rainfed arable crops. In the updated version of ENCORE, crop production is divided into eight economic activities at group and class levels of ISIC. These include, for example, Growing of rice, Growing of cereals, Growing of sugar cane or Growing of other non-perennial crops. The ISIC classification will make it easier for the bank to match different companies in its portfolio to the ENCORE data, while the increased granularity will offer a clearer view of dependencies and pressures for production of different crops.
Companies and financial institutions can now access the new ENCORE knowledge base via downloadable spreadsheets – for offline analysis – with the updates set to be embedded into an enhanced version of the online platform due for release later this year.
Users can find out more about the updates to support their transition between old and new versions of the knowledge base by downloading the following resources:
- An explanatory note providing more details about the updates
- An FAQ document
- Crosswalk tables and guidance documents
“The business world is starting to get serious about understanding and screening for nature-related risk. Since its inception six years ago, hundreds of users – from pharmaceuticals to insurers to central banks – have been using ENCORE, and its methodology is now globally referenced by the TNFD.
The release of an enhanced ENCORE methodological structure and knowledge base is more than just a procedural update. The improvements come in response to pioneering users’ appetite to better understand how nature underpins their operations, and we encourage the business and financial community to use the tool to drive their decision-making towards a sustainable future – for economies, consumers and the planet.”
Neville Ash, Director of UNEP-WCMC
“ENCORE provides an unparalleled resource for financial institutions to evaluate their environmental exposure, offering critical insights into the nature-related impacts and dependencies within their portfolios. This new update follows the demand of our membership and makes ENCORE even more useful as a screening tool, empowering financial institutions to integrate nature considerations into their strategic decision-making, fostering resilience and sustainability.”
Eric Usher, Head of UNEP FI
“As growing numbers of companies begin to disclose on nature dependencies, impacts, risks and opportunities, screening tools like ENCORE help them identify the issues that are most likely to be material and should be prioritised in assessments. This ensures assessments are both comprehensive and resource efficient. The increased level of detail and addition of information about value chain links in the updated ENCORE tool will be useful for companies beginning to understand their nature-related risks as well as more advanced users. We look forward to working with Global Canopy, UNEP FI and UNEP-WCMC on integrating the new ENCORE features into the TNFD framework and guidance.”
Emily McKenzie, Technical Director at the TNFD
“As a founding partner of ENCORE, which launched in 2018, when nature was nascent for financial institutions and businesses, Global Canopy is delighted to have supported the tool‘s evolution, helping keep it cutting edge. As the market’s interest in nature has developed and matured over the past years, so too has ENCORE, rolling out an increasingly comprehensive offering to organisations seeking to understand and ultimately disclose on their nature-related issues.”
Marianne Haahr, Nature-related Finance Director at Global Canopy
The updates were made as part of the Horizon Europe project “Strengthening Understanding and Strategies of Business to Assess and Integrate Nature (SUSTAIN)”. The organisations involved in the technical developments were UNEP-WCMC, along with the Capitals Coalition, the Netherlands Environmental Assessment Agency (PBL), the International Union for the Conservation of Nature (IUCN), IUCN Europe and Eidgenoessische Technische Hochschule Zürich (ETH Zurich). The SUSTAIN project consortium also includes World Business Council for Sustainable Development, ShareAction, Oxford Sustainable Finance Group and Fundación Biodiversidad, who have provided key support in outreach to businesses and financial institutions.