Natural Capital – Definition & Detailed Explanation – Green and Sustainable Finance Glossary

What is Natural Capital?

Natural capital refers to the stock of natural resources and ecosystems that provide benefits to people. These benefits include clean air and water, fertile soil for agriculture, biodiversity for food and medicine, and the regulation of climate and natural disasters. Natural capital is essential for human well-being and economic development, as it underpins all aspects of life on Earth.

Why is Natural Capital important in sustainable finance?

Natural capital is crucial for sustainable development and the long-term prosperity of society. Recognizing the value of natural capital in financial decision-making is essential for ensuring the sustainability of investments and the resilience of businesses. By incorporating natural capital into financial strategies, investors can better manage risks, enhance returns, and contribute to the conservation and restoration of ecosystems.

How is Natural Capital valued?

Valuing natural capital involves assessing the economic, social, and environmental benefits that ecosystems provide. This can be done through various methods, such as ecosystem service valuation, natural capital accounting, and market-based mechanisms like payments for ecosystem services. By quantifying the value of natural capital, investors can make informed decisions that consider the full range of benefits and costs associated with their investments.

What are the benefits of investing in Natural Capital?

Investing in natural capital offers a range of benefits for both investors and society as a whole. These benefits include improved risk management, enhanced financial performance, increased resilience to environmental challenges, and positive impacts on biodiversity and ecosystem health. By investing in natural capital, companies can create value for shareholders, customers, and communities while contributing to a more sustainable and equitable future.

How can companies incorporate Natural Capital into their financial decision-making?

Companies can incorporate natural capital into their financial decision-making by conducting natural capital assessments, integrating environmental considerations into risk management processes, and aligning business strategies with sustainability goals. By accounting for the value of natural capital in their operations, companies can identify opportunities to reduce costs, enhance efficiency, and create new revenue streams that benefit both the environment and the bottom line.

What are some examples of Natural Capital projects in the finance industry?

There are several examples of natural capital projects in the finance industry that demonstrate the value of investing in ecosystems and biodiversity. For instance, green bonds are financial instruments that fund projects with environmental benefits, such as renewable energy, sustainable agriculture, and conservation initiatives. Similarly, impact investing focuses on generating positive social and environmental outcomes alongside financial returns, with a particular emphasis on natural capital preservation and restoration. Overall, these projects highlight the potential for the finance industry to drive positive change through investments that support the conservation and sustainable use of natural resources.