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Natural Capital

How does the natural world affect you?

To reach net zero by 2050, understanding how nature supports the functioning of society, as well as its links with climate change, is vital.

Thinking and efforts to mitigate the risks of climate change have advanced more quickly than those addressed towards nature-related risks. However, things are changing not least because nature-based solutions, focused on enhancing natural habitats, prove to be one of the cheapest and most effective tools we have to meet the goals of the Paris Agreement.

Mark Wright, Director of Science at WWF, outlines the triple mission we all have: “We need to find a way to meet the needs of the growing human population while facilitating the restoration of nature, and staying within the safe operating space of 1.5°C in terms of average global warming.”

Businesses who want to do the right thing will not only need to address their carbon footprint — but their natural footprint, too. Doing so will create and protect value for business and for society.

Five things you need to know about natural capital

It affects everyone

The term natural capital refers to the elements of the natural environment that provide valuable goods and services to society. It applies an economic lens to the world’s stocks of natural assets — like forests, rivers, and soil — and how society and businesses rely on them to function. Think clean air and water, medicine and food, temperature and weather regulation.

Nature loss = business loss

According to the World Economic Forum, it’s estimated that over half of global GDP is moderately or highly dependent on nature — with $44 trillion potentially threatened by nature loss. It’s an issue that affects all businesses in some way, either directly or through the supply chain. If we want these natural resources to be available in next 50 years, businesses need to think about their role in protecting them and their ecosystems.

The UK Treasury recently published the final report of a Review led by Professor Sir Partha Dasgupta on the Economics of Biodiversity. The landmark report calls for a change in our measures of economic success. It recommends we treat nature as an asset and introduce natural capital into our national accounting systems.

Nature-based solutions are our ally

If we keep drawing down stocks of natural capital without allowing them to recover, we run the risk of an ecosystem collapse. That’s where nature-based solutions come in, which involve actions to protect, sustainably manage, and restore natural or modified ecosystems to address challenges.

Restoring ecosystems is a prime example of a nature-based solution in action. Ecosystems help regulate our climate, cycle nutrients and produce biomass in the form of food, fuel and fibre. They also play a vital role in carbon capture which will support our transition to net zero, as well as help us adapt to the impacts of climate change that have already set in. For example, mangroves provide coastal communities and businesses with protection from storm surges, while restored wetlands and forests serve as buffers against flooding and mudslides. Modest conservation efforts offer a cost-effective way to mitigate climate risk and protect against significant losses.

Understanding your value chain is crucial

To address your natural footprint you’ll need to know where the highest impacts and dependencies on nature lie across your value chain. The Natural Capital Protocol’s risk management framework is a good place to start.

Some companies have pioneered an Environment Profit & Loss tool to financially quantify their impacts on the environment, leading to a reduced environmental footprint and other strategic benefits at all levels of the business.

Clarity for businesses and investors is on its way

Setting nature-based targets and nature-related risk frameworks is still a work in progress — but things are set to get more transparent. The Taskforce on Nature-related Financial Disclosures (TNFD) aims to deliver a reporting framework by 2023, enabling companies to disclose nature-related risks – and how they’re managing them – to investors.

The framework will complement that from the TCFD, so businesses and investors can get a complete picture of their environmental risks. And with plans for the biggest global environment summit in a decade set to go ahead virtually in October, our societal and commercial relationship to nature for the coming decade may well be redefined. Watch this space.