This year’s theme for Earth Day is ‘Investing in Our Planet’.
Investing in natural capital is a way of achieving both a green and prosperous future. Natural capital is a form of capital which by definition is any resource or asset that stores or provides value to people. Natural capital can be viewed as the aspects of nature that yield benefits to people economically and socially, yet they often are not seen or valued in an economic sense. The natural capital accounting approach aims to bring these unseen benefits into view and put a value on them. This in turn should provide economic incentives to keep encouraging the development and investment of these unseen benefits.
The natural capital approach aims to value, protect and respect nature. Nature has intrinsic value that cannot always be seen, and the natural capital approach intends to assess and measure this value in order to provide protection for the environment. This value can be expressed in many ways such as social, physical or monetary. Natural capital assessments do not propose putting a price on nature, but instead are attempting to help people to understand nature’s benefits and inherent worth. These assessments can be used to ensure that people are aware of the unseen benefits, and therefore encourage the respect and restoration of nature's value.
Natural Capital Accounting – What It Is and How It Works.
A core principle of this approach is the use of natural capital accounting to produce accounts that record and display all of the benefits that a certain habitat such as a farmland or wetland has. Natural capital accounting is defined as ‘a system for organising information about natural capital assets and ecosystem services.’ It can be viewed as a powerful tool that could help protect the environment and reduce biodiversity loss, it does this by measuring and reporting the stocks and flows of all natural capital within a habitat or ecosystem.
The habitat or ecosystem such as a wetland or farmland is considered to be the asset. The flows from the asset are known as ecosystem services, as the economy and society benefit from these services.
On estates and farms this natural capital may come in the form of stock such as:
These stocks can provide flows in the form of ecosystem services such as carbon sequestration, soil protection, water retention and species biodiversity.
The size and the condition of the habitat are measured as these factors indicate the ability of the habitat to continue to supply its flows such as ecosystem services. The quantity and value of services supplied by the ecosystem are also recorded, as well as the overall lifetime value of the asset and its ability to provide services over many years.
The aim is to ensure that investment in natural habitats results in the habitat remaining protected and healthy over a long period of time. By measuring natural capital assets and recording this information in detailed accounts, it can ensure that those who look after these areas are rewarded and supported to make certain that they can sustain these natural habitats.
The Benefits of Natural Capital Accounting
The measuring of natural capital and the use of natural capital accounts is vital for ensuring sustainable practices are adopted in both the corporate and public spheres. In a public sense, natural capital accounting can be used for various purposes. Governments now more than ever in an effort to meet climate targets are looking for new ways to reduce their countries’ environmental impacts. There are now schemes in countries such as Ireland, the UK and Australia, that offer incentives to farmers and other landowners, based off of a natural capital accounting approach. These schemes afford a new stream of income to landowners by offering them money for their carbon storage abilities on their land. The carbon market is an example of how the natural capital approach can be valued in monetary terms.
On a corporate scale there are many new opportunities in the environmental sphere for landowners to sell to private organisations, whether this be their services or their other benefits. By investing in and managing natural capital, there are now many ways to sell environmental benefits to companies and organisations who are willing to pay to secure these lucrative potential sources of profit.
Examples of potential customers for improved environmental outcomes include:
· Water companies seeking to reduce pollution levels,
· Insurance companies looking to reduce flood risk,
· Corporate customers looking to offset residual emissions.
There are now many environmental agencies and consultancies offering to produce natural capital accounts for smaller landowners and estates. These accounts are a vital component, as in order to tap into these new markets, landowners will have to provide a credible evidence base showing the environmental outcomes that they can deliver.
Frameworks and Standards
All accounting standards require frameworks and natural capital accounting is no exception. The policy and frameworks surrounding this area are still currently being developed. One international framework that has been developed by the United Nations in this area and has great influence is the SEEA, which is ‘The System of Environmental-Economic Accounting.’ This framework was put forth by the UN to link natural capital accounts into each country's national accounts, this is vital in ensuring that the natural capital approach is engrained in wider economic accounts.
Another framework in the area of natural capital is the TEEB initiative. TEEB stands for The Economics of Ecosystems and Biodiversity and it is a global initiative focused on “making nature’s values visible”. This initiative intends to bring the values of biodiversity and ecosystem services into policy decisions from a local to global scale. It aims to show policymakers the benefits that these services supply in a way that will make them understand the economic and social value of these benefits. This is to make certain that policy in this area takes these benefits into account, as it is often only by showing the economic value of a service that this service is then taken into consideration by law and policy makers.
The Economic Value of Ecosystem Services
The EU estimated that in 2019 ecosystem services, i.e. the flows of natural capital, were worth roughly €234 million.
These services included:
· Crop provision,
· Nature recreation,
· Water purification.
One of the key ecosystem services that added significant value was carbon sequestration. Vegetation within ecosystems can play an important role in mitigating climate change impacts, by helping to reduce the amount of carbon released into the atmosphere. This is done through the process of photosynthesis, vegetation gets energy from the sun, then combines this with water and fixes carbon dioxide. This is then stored in the soil rather than being released into the atmosphere. Furthermore, vegetation also releases oxygen into the atmosphere, these effects can then help to reduce the percentage of carbon present in the atmosphere.
The value of the net carbon uptake through ecosystem services to the EU is estimated at roughly €13.3 billion. (This figure is based on the social costs of carbon). As carbon dioxide and other greenhouse gases are spread all over the globe, this value does not only affect the EU but the global society. This is why it is necessary that countries all over the world work together to reduce greenhouse gases emissions. Therefore, natural capital accounting tools must be used at a global scale to ensure that this value is economically shared throughout the world.
The Social Value of Natural Capital Accounting
It is evident that Natural Capital Accounting offers many benefits on both a public and private scale. For private landowners, it gives them an extra source of income, monetary incentives offered encourage landowners to protect their land and earn compensation from this act. It also strengthens and adds increased value to their land. By continuing to invest in their natural assets, landowners will be able to sustainably reap the benefits well into the future.
On a national scale, governments and public bodies gain a wide and varied amount of environmental data which they can use to create and shape future policy. It also gives them insight into the changes they need to make to ensure that they meet their environmental targets.
However, this approach will not be sustainable unless the policy surrounding it is created, implemented and enforced. Natural Capital Accounting needs to become an integral part of the national accounting framework on a global scale. It is only when policy and incentives are introduced on a worldwide scale, that we will see the true benefits of Natural Capital Accounting and the Natural Capital approach in protecting the environment and its resources.