Sarah Day – Principal, Advisory
Capital – derived from, depending on, a product of nature. Natural capital.
Framed like that, it starts to make sense: natural capital. No hidden meaning, no mystical asset class, quite simply the proportion of all capital that is dependent on ecosystem services.
By this definition, natural capital already exists within every portfolio. Consider the the World Economic Forum’s estimation that more than half the world’s GDP ($58tr) is moderately or highly dependent on nature;1 and the recent Australian Bureau of Statistics nomination of a non-exhaustive list of Australia’s ecosystem services totalling AUD$85bn annually.2
For food and fibre supply chains, this is easy enough to digest – $40.5bn of the ABS estimate is derived from the forage cattle and sheep rely on, and the wild fish sold in Australian markets. But what about property investors? How to quantify the exposure of that asset class to natural capital decline? Mangroves and saltmarsh alone are estimated to provide protection from damage to over 4,000 dwellings, valued at somewhere between AUD$57m-$65m. Not to mention the cultural value of coral reefs, without which our tourism industry would be AUD$5.7bn shy in Queensland alone. Water scarcity presents as a key risk for almost all industries – even tech and manufacturing, where the reliance on water for manufacturing has caused the delay and reduced output of microchips in Taiwan3, and steep declines in share value for Tesla due to water scarcity. 4
Beyond these examples, excellent resources exist to help businesses assess their reliance on nature,5 a worthy exercise for all businesses keen to understand the extent of their exposure.6
WHERE TO FROM HERE?
If natural capital does already exist within every portfolio – where to from here? A recent panel suggested a useful framework of principles, trends and fads as a way to determine where to place focus. By that logic, and bearing in mind the extent to which natural capital underpins the functioning of our society and economy, the fact that we are depleting biodiversity – a cornerstone of healthy ecosystem function and thereby ecosystem services – at unprecedented rates should well and truly position natural capital as a key principle on which to focus.
Regardless of your industry – as an investor, a banker or insurer, a retailer, a property mogul or a tech genius – you can accept that you have an exposure to natural capital, and specifically its decline. Which begs the question, what will you do about it? Understanding it is naturally the first task – where is your business or operations most acutely exposed to the decline of nature, what dependencies exist which haven’t previously been valued in estimating cost of production or conducting due diligence?
From there, a choice presents itself: to forge on, hoping nature will right itself, and the services of nature in provisioning, regulating, supporting or cultural outcomes will continue to underwrite your business success. Or, to proactively seek out opportunities to enhance your exposure to natural capital; investing in operations, asset classes or indeed individual suppliers that aim to protect and restore nature, thereby protecting your business interests.
What this actually looks like will differ by industry, with varying levels of maturity and proactivity across each. At Impact Ag Australia our focus is clear: accelerating agriculture to activate the power of nature – we work with our advisory clients to contextualise, strategise and activate natural capital opportunities, ensuring that its protection, restoration and enhancement are at the heart of business success.
JOIN THE IMPACT AG AUSTRALIA JOURNEY
Follow Impact Ag Australia on LinkedIn for updates and insights, and subscribe to our newsletter to join us, as we accelerate agriculture – from the ground up.
1 https://www.weforum.org/press/2020/01/half-of-world-s-gdp-moderately-or-highly-dependent-on-nature-says-new-report/
2 https://www.abs.gov.au/statistics/environment/environmental-management/national-ecosystem-accounts-experimental-estimates/2020-21
3 https://thediplomat.com/2024/09/how-water-scarcity-threatens-taiwans-semiconductor-industry/
4https://tnfd.global/wp-content/uploads/2024/10/BNEF_When-the-Bee-Stings_Tesla.pdf
5 https://encorenature.org/en
6Which may be prudent, considering nature- related risks are considered to have the potential to cause material harm to the interests of Australian companies, and therefore within a company director’s duty to understand and action: Hartford-Davis Bush Opinion.
