ESG Series: Natural capital in the balance

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Executive summary │ Natural capital in the balance

Scaling the nature transition

 

Nature as an asset class and how regulation can support

 

 

 

 

 

 

 

Scaling natural capital solutions

 

• The global economy is fundamentally contingent on natural capital – the world’s stock of natural assets, worth at estimated USD125 trillion. Yet, rapid population growth and increases in per capita consumption are depleting the world’s stock of natural capital more swiftly than it is being replenished. That has tangible consequences across physical, transition and systemic risks.
• The playbook for corporate engagement on nature is still in early development. Some companies are starting to acknowledge dimensions of nature such as biodiversity loss, but few have set quantified targets, and commitments vary. A key challenge is the lack of standardisation in approach to measuring natural capital and ecosystem services, and many companies may not know what steps to take beyond simply acknowledging the challenge.
• Encouragingly industry-led organisations, such as the Taskforce on Nature-related Financial Disclosures (TNFD) is helping lead the way by developing risk management frameworks for nature-related dependencies. Similarly, the Science Based Target Network (SBTN) could eventually drive demand for biodiversity credits, as the Science Based Targets initiative’s (SBTi) climate programmes has done for carbon offsets.
• How can we scale natural capital solutions – and the technologies that can amplify them – to help achieve net zero targets? Carbon markets can incentivise and finance natural capital solutions – though they are far from reaching critical mass. Meanwhile, biodiversity credit markets occupy a space next to carbon markets – partly overlapping where carbon offsets comprise biodiversity co-benefits – though they too are at an early stage of development with large discrepancies on terminologies.
• All in, acting as the planet’s balance sheet, natural capital provides critical services and resilience, ranging from providing protective barriers for communities from storms and floods to absorbing CO2 and limiting the pace of climate change. As the global economy transitions to net zero, natural capital – and its conservation – has a significant role to play. The efforts that corporates have made on climate change and the lessons learnt – some with a positive return on investment – could serve as a foundation for action on nature.