What Is Natural Capital?
Natural Capital is the world’s stock of natural assets which include air, water, forests, minerals and other natural resources. It is from this Natural Capital that humans derive a wide range of services, often called ecosystem services, which make human life possible.
Wealth of the Earth
“All material wealth must have its ORIGINS in the NATURAL WEALTH of the EARTH. We add value to the earth’s natural sources through our labour, and this combination of resources and industry is the SOURCE of all our material wealth of—EVERYTHING WE HAVE.”
Natural Capital’s Value
Natural Capital has been grossly undervalued by the marketplace for many years because it’s based on a global extractive economic model whereby the extraction costs of natural resources primarily define price and not the replacement costs. This leads to externalities in the form of price subsidies that are borne by future generations. This has, in turn, led to unsustainable over-consumption and the near collapse of the world’s primary life giving ecosystems—our forests & oceans.
By paying only for the extraction costs of our natural resources and not their full replacement costs, we are stealing from our children’s futures to subsidize the cost of the goods we consume today. And for the first time in modern history, we have condemned the next generation to a lower standard of living than our own.
“We’re working hard to develop and market the next generation of biofuels right now – with sustainability principles embedded into our approach at every point. A sustainable biofuels business requires continuous and effective management of the key issues that underpin our operations. These include protecting and improving carbon stocks and ecosystems, minimising negative impacts on the environment and communities while increasing positive contributions.” – British Petroleum
“As the world leader in beauty, L’Oréal’s commitment is at the highest level: More than ever, it is crucial to protect forests in emerging nations. Forests that represent an authentic natural capital for humanity today, and for future generations to come.” – L’Oréal S.A.
“Unilever relies heavily on agricultural raw materials such as palm oil, paper and pulp and soy. Unsustainable cultivation of these crops is exacerbating the destruction of remaining tropical rainforests. Deforestation causes 15% of the world’s greenhouse gas emissions and thus makes a significant contribution to global climate change, which has huge risks for our business.” – Unilever PLC
Natural Capital, and the environmental services it provides, is now beginning to be recognized as a valuable asset class but the lack of a proper market pricing mechanism has led to undervaluation and illiquidity for their nascent financial derivatives (environmental mitigation credits).
This, in turn, has undermined the market’s ability to develop widely accepted financial product hedges against the risk exposure from climate change and deforestation, which are manifestations of these Natural Capital market distortions.
Investing in Natural Capital
There is an emerging industry that is investing in Natural Capital. Conservation Lang Bank companies are investing in some of the world’s most endangered ecosystems that provide compound value components including Forest, Wetlands and Wildlife (including Endangered Species) Conservation, Climate Change (Greenhouse Gas) Emissions Mitigation, Rural Community Development & Impact Investing through a revolutionary “Payments for Conservation” development model.
InfiniteEARTH is an example of one such company and plays a pivotal role in both VERIDIUM’s creation of TGRs and their expected success.