What is Natural Capital and why is it important?

Natural capital is a way of thinking about nature as a stock that provides a flow of benefits to people and the economy. It consists of natural capital assets – such as water, forests and clean air.

The goods and services that natural capital provides – such as foods, water, or climate regulation – are called ecosystem services. These provide people everywhere with the means for healthy lives and underpin all economic activity.

Increasing pressures on nature, from climate change and biodiversity loss for instance, are degrading the ecosystems on which our economies depend. This carries real and immediate risks for businesses.

Manufacturers must have access to water to build cars; the agriculture sector needs pollinators, like bees, to grow crops without excessive costs. Financial institutions are in turn exposed to natural capital risks that affect the businesses that they invest in, lend to, or insure.

“As companies face increasing risks related to climate change and resource scarcity, it’s critical that we fully account for the natural capital upon which our businesses rely.”
Peter Grauer Chairman, Bloomberg

Natural capital risk can be caused not just by physical factors, like drought or extreme weather events, but also by changes in legislation. The EU, for example, has made companies directly liable for their impacts on water resources, fauna, flora, and natural habitats. As a result companies could be liable for the costs of environmental damage, with implications for investors.

“The environment provides some $72tn a year of “free” support to the global economy. That’s more than four times the size of the US economy.”
Inger Andersen Director General, International Union for Conservation of Nature

At the Rio+20 conference in 2012 we launched the Natural Capital Declaration (NCD). The declaration has been signed by the CEOs of more than 40 financial institutions from around the world. It formalises their commitment to the integration of natural capital considerations into financial sector reporting.

The Alliance was formed to support the signatories of this declaration find practical ways to implement it.