“Natural capital is the world’s most important asset class because if we don’t truly value it, we will oversee the end of all life on earth…”
In an era where the global economy is intricately linked with environmental sustainability, natural capital is rapidly being recognised as the world’s most crucial asset class. Its undervaluation not only undermines economic stability but also threatens the very future of life on Earth. This article explores the multifaceted role of natural capital, illustrating its pivotal position in underpinning economies, enhancing the well-being of people and wildlife, alongside offering unparalleled investment opportunities.
Foundation of Economies
Natural capital literally forms the bedrock upon which our economies are constructed, providing indispensable goods and services that drive economic activities and ensure human welfare. These range from foundational inputs like raw materials and food production to vital natural regulatory systems such as climate moderation and water purification. Such a broad spectrum of benefits illustrates that without a healthy stock of natural capital, economic prosperity is unsustainable, and so is our very future of life on earth.
Defining Natural Capital
Natural capital comprises the Earth’s natural assets, including soil, air, water, and all living organisms, which collectively yield an incredible array of services essential for health, happiness, and well-being (of all kinds). These ecosystem services facilitate numerous processes critical for life, such as pollination, water and nutrient cycles, and direct economic benefits through resource provision. Recognising and accurately valuing natural capital is imperative for informed decision-making that aligns economic growth with environmental regeneration (and then sustainability), ensuring the long-term well-being of both people and the planet.
Climate Regulation and Ecosystem Services
A key function of natural capital is its role in climate stabilisation. Forests, oceans, and wetlands serve as carbon sinks, mitigating climate change by absorbing CO2. Conversely, the degradation of these resources accelerates global boiling, underscoring the necessity to safeguard our natural capital. Beyond climate, these ecosystems underpin biodiversity and provide essential services like pollination, water filtration, and disease control, all of which are vital for maintaining ecological balance and human health and wellbeing.
Resilience, Adaptation, and Interdependence
Investing in natural capital enhances resilience against environmental shocks, buffering communities against disasters like floods and droughts. Such investments also foster adaptation to changing environmental conditions, securing livelihoods and economies. The health of natural capital is inextricably linked with human and economic well-being, emphasising the need for regenerative management practices that acknowledge and preserve these interdependences.
Sustainable Development and Economic Valuation
Protecting and enriching natural capital is central to achieving sustainable development goals, ensuring that future generations inherit a habitable world, where natural resources and services are intact and maybe even plentiful. Although completely overlooked in conventional financial terms, instead of being considered as externalities, the economic value of natural capital is incredible, driving the need for methodologies that capture the full extent of its contribution.
Unveiling Investment Opportunities
The investment potential of developing natural capital markets is substantial, encompassing diverse sectors and services. Many estimates suggest trillions of dollars (or your currency of choice) in global value, highlighting significant investment prospects in ecosystem services, conservation finance, and other green financial instruments. These opportunities not only promise significant financial returns but also contribute to the planet’s health, aligning investor interests with positive environmental and social impacts. Here’s some thoughts of the point scale of the investment opportunities.
- Global Asset Value: The immense worth of natural capital, potentially exceeding $44 trillion globally, underscores its significance as a cornerstone of economic stability and growth (inspired by the World Bank’s Wealth of Nations Report).
- Ecosystem Services Market: Valued at approximately $125 trillion annually, this market encapsulates services essential for human survival and economic activity, presenting vast investment avenues (linked to Costanza et al., original paper, “The Value of the World’s Ecosystem Services and Natural Capital,” first published in Nature in 1997).
- Conservation Finance: With potential reaching hundreds of billions, investments in sustainable natural resource management signal a thriving market that balances economic and environmental needs (inspired by thought pieces produced by Credit Suisse and the Nature Conservancy).
- Green Bonds: The burgeoning green bond market reflects a shift toward environmentally conscious investments, offering robust opportunities for investors seeking sustainable impact (Climate Bonds Initiative).
- Corporate Investments: As businesses increasingly recognise the risks associated with natural capital degradation, corporate investments in sustainability are rising, indicating a trend toward more responsible and forward-thinking business practices (examples include Unilever, Nestle, HSBC & Microsoft).
The World’s Most Important Asset Class
Natural capital stands as the world’s most important asset class, integral to economic stability, environmental resilience, and the health, happiness, and well-being of all living things. Its comprehensive valuation and incorporation into financial and economic decision-making herald a future where investments are intrinsically linked to sustainability and genuine prosperity.
Oxygen Conservation’s Natural Capital Products
We’re incredibly excited to bring our first natural capital products to market later in 2024 and look forward to playing our part in establishing natural capital as the world’s most important asset class. We will be exploring carbon offset partnerships totalling in excess 50,000 tCO2e and opening our habitat banks with around 1,000 BNG units.
Our contribution will be to offer the highest quality conservation-based natural capital credits ensuring that Oxygen Conservation, and by extension the UK, leads the way in establishing premium natural capital investment products and opportunities.
Rich Stockdale
Founder & Managing Director