Valuing natural capital

Jennifer Morris
Chief Executive Officer, The
Nature Conservancy

Fred Hu
Founder, Chairman and Chief
Executive Officer, Primavera
Capital

Biodiversity is the very essence of life on our
planet. The greater the variety of species, the
better our Earth can mitigate and adapt to climate
emergencies, unrelenting population growth and
resource depletion. Yet, biodiversity is in sharp
and long-term decline driven by globally dispersed
threats including climate change, habitat loss,
pollution and poorly managed resource exploitation.
The Intergovernmental Science-Policy Platform
on Biodiversity and Ecosystem Services (IPBES)
warns that we’re depleting nature faster than it can
regenerate. This year, Earth Overshoot Day – the
date each year when humanity’s ecological demand
exceeds the planet’s annual biocapacity – fell on
August 1st, the earliest since records began in 1970.
Without change, up to 1 million species could vanish
by 2050. Despite this clear threat, the nature crisis
remains under-recognized. While there’s no global
metric for nature like parts per million of CO2 for
climate, the World Bank estimates a $2.7 trillion GDP
loss by 2030 if key ecosystem services collapse. By
contrast, coordinated nature-smart policies could
boost global GDP by up to $150 billion in 2030.

Progress towards valuing
natural capital

Significant progress has been made in
understanding natural capital (the world’s stocks of
natural assets like geology, soil, air, water, all living
organisms) and developing mechanisms to scaleup
investments that benefit both nature and people.

The concept of ecosystem services – such as soil
renewal, pollination, water storage and climate
regulation – are being mainstreamed and collective
action is driving a transition in approach from merely
preventing harm and taking precautions towards
more sustainable value creation. For example, in
Costa Rica, the government has implemented a
successful Payments for Environmental Services
(PES) Program that compensates landowners
for conserving forests, which in turn helps
maintain biodiversity, water resources and carbon
sequestration. This initiative has not only preserved
critical ecosystem services but also generated
sustainable economic value for local communities.
Across the globe, both in private discussions
and public discourse, the concept of viewing the
environment as natural capital is gaining traction.
This approach helps people understand the
importance of assigning value to preserving, using
and restoring nature. By estimating and revealing
the hidden costs of degradation and reduction of
natural assets, this approach encourages more
informed and financially sensible decisions about
our natural resources. While the idea isn’t new, it is
becoming more widely recognized and applied.
There are many positive signals, such as 2022’s
historic UN Biodiversity Conference (COP15), where
world leaders agreed on the Kunming-Montreal
Global Biodiversity Framework – a global set of
goals and targets to halt and reverse nature loss
by 2030. Another sign of progress is the 10 Point
Plan for Financing Biodiversity (10PP), an initiative
launched by Ecuador, Gabon, Maldives and the
United Kingdom, which sets out a roadmap for
unlocking nature finance from all sources. With
endorsement now from 42 countries, 10PP’s
dashboard demonstrates progress a year later
towards filling the nature funding gap across a
comprehensive suite of measures.

Current financing flows and gaps

To adequately protect nature, we must catalyse action
and investment in the right places and transform
production systems to enhance rather than degrade
nature. A 2019 study by The Nature Conservancy, the
Paulson Institute and the Cornell Atkinson Center for
Sustainability found that reversing biodiversity loss by
2030 requires around $700 billion annually – far more
than current funding levels.
Much of this funding could be achieved by reducing
or repurposing harmful subsidies that are not
aligned to the value of nature. A true accounting
of natural capital would reveal the cost of many
policies and financial incentives that drive land-,
water- and sea-use change, as well as biodiversity
loss. For example, Indonesia has reduced fossil fuel
subsidies, channelling funds into renewable energy
projects. These transformative policies demonstrate
how repurposing subsidies can reduce biodiversity
loss and make conservation more financially viable.

The role of the private sector in scaling-up financial
flows through market-driven mechanisms is
crucial. The work of the Taskforce on Naturerelated
Financial Disclosures (TNFD) is particularly
commendable, as it has developed disclosure
recommendations and guidance that help
businesses and financial institutions assess, report
and act on their nature-related dependencies,
impacts, risks and opportunities.
October 2024’s UN Biodiversity Conference
(COP16), themed “Peace with Nature,” focuses on
rethinking economic models that prioritize extraction
and pollution. A central goal is to advance Target 18
of the Global Biodiversity Framework, which aims
to reform harmful subsidies and redirect $500 billion
annually towards conservation efforts that promote
a sustainable relationship with nature.
Nature and climate change stand on the brink
of new ideas and opportunities for investing in
mitigation, adaptation and resilience. We see three
areas worth exploring and developing further:

– Strategic approach to mainstreaming
biodiversity.
– Supporting the multilateral development bank
reform agenda.
– Scaling-up private investment in conservation.

1. Strategic approach to mainstreaming
biodiversity
The global conservation community has made
significant strides over the past 15 years to
increase protected areas for biodiversity. However,
biodiversity continues its precipitous decline
because protected areas alone cannot stop
biodiversity loss. The drivers and root causes of this
loss must be addressed – and they are embedded
in our production and consumption systems and
supply chains.
While the Global Biodiversity Framework includes
targets (e.g. Target 14) to mainstream biodiversity
in key sectors, parties to the Convention often lack
the tools and political will to drive the necessary
transitions. The Secretariat of the CBD should
engage with global and multilateral bodies,
including multilateral development banks, to
promote the development and implementation of
sector-specific transition plans. As a framework for
all, the Global Biodiversity Framework requires the
Convention to play a crucial role in encouraging its
adoption across sectors. Now is the time to ramp
up ambition and efforts to mainstream biodiversity
and maintain focus on this critical issue.
We must agree on a long-term strategic approach
for integrating and measuring biodiversity
considerations in government policies, strategies
and practices. This includes ensuring measures to
transform food, energy and finance systems that
protect nature.

2. Supporting the multilateral development
bank reform agenda
Encouraging multilateral development banks
(MDBs) to align their policies and investment
portfolios with the Global Biodiversity Framework
is essential to closing the biodiversity finance gap.
This was recognized as one of the points in the
10 Point Plan for Financing Biodiversity. The CBD
COP15 decision on resource mobilization calls
on MDBs to measure the nature positivity of their
portfolios and set targets over time to increase the
nature positivity of their portfolios, as they have
done for climate change. The decision echoes a
previous call by G7 environment ministers, which
was reiterated in their April 2024 Communiqué.

3. Scaling-up private investment
in conservation
Valuing natural capital means integrating the value of
nature into business decision-making by including
natural resources and ecosystem services on balance
sheets. This approach can drive conservation
practices and attract investment in nature. However,
unlike climate change, biodiversity lacks a simple,
standardized metric, presenting a significant
challenge. The Global Biodiversity Framework’s
monitoring framework includes over 100 indicators,
but it doesn’t capture all components. Building on
the work of TNFD and the Science Based Targets
Network (SBTN), an efficient framework for the private
sector to identify and respond to its biodiversity
impacts is urgently needed.

Collaborations like the Nature Positive Initiative are
working to harmonize frameworks and standards,
encouraging greater adoption by the business
community. While a fully fungible biodiversity
investment product may not be necessary,
creating a common template for businesses to
support measurable national biodiversity strategies
and action plans (NBSAPs) could pave the way for
investing in natural capital. This approach could
serve as a precursor to or supplement mandated
compensatory mitigation.

Uniting for nature

We have made great strides in unlocking financial
solutions to address the biodiversity crisis and now
have an opportunity to mobilize capital and invest
in a nature-positive future at scale. The global
community – national governments, international
organizations, MDBs and NGOs – should unite to
develop and embrace a shared vision and adopt
a set of common goals for nature, investing with
bold, clear and measurable biodiversity targets. The
public and private sectors should join hands to foster
collaborations and partnerships, make united efforts
to transform production systems and consumption
patterns, and promote capital flows at scale into
natural capital projects. The more investments we
make in nature today, the greater the dividends we
stand to gain for generations to come.