Responding to audience questions during our recent Climateworks webinar, the second article in our series outlines the challenges and benefits to measuring our natural assets and the services they provide.
Our world’s natural areas are under significant threat as demand for land for agriculture and urban development rises. This demand, coupled with climate change impacts such as rising temperatures and changes in rainfall patterns, means that globally ecosystem loss and species decline are occuring at unprecedented rates. However, nature is also being used as an opportunity to mitigate these negative impacts, through activities such as sequestering carbon. It is therefore critical to protect and restore our natural areas in order to achieve climate and sustainability goals. In our recent webinar, we heard that businesses and governments are recognising the importance of nature and are now looking to become ‘nature positive’, referring to actions and investments that improve natural areas rather than deplete them.
The term ‘natural capital’ represents a new way of thinking about the value of nature and its role in our modern economic system. It includes both natural assets (e.g. water, soil, plants and animals) and the services they provide (e.g. pollination of crops, filtration of water). There is increased interest in natural capital as governments and businesses realise the importance of nature in delivering on net zero commitments. There is no path to net zero without nature – the most tried and tested solutions to remove carbon dioxide from the atmosphere are found in nature. While reducing greenhouse gas emissions is critical to achieving net zero commitments, action must also be taken to protect and restore natural areas in order to limit global warming to 1.5 degrees. These actions – including reforestation, reduced land clearing, and soil carbon sequestration – will improve Earth’s ability to capture and store carbon.
Challenges of building natural capital
There are several barriers to protecting and improving natural capital at scale, particularly on private land. While most farmers, land managers, and resource holders recognise the need to protect different types of natural capital, it can be hard to see the benefit of protecting natural areas on their properties without incurring significant cost or loss of income. In our current economic system, there needs to be a strong financial incentive for local resource users to retain and build natural capital, and to forgo the opportunity cost of other activities.
There are also challenges around how to efficiently measure natural capital. Many different methodologies and approaches have been developed, both in Australia and globally. While this momentum is positive, it creates inconsistencies in how natural capital is defined and measured. This is leading to confusion within the market and could result in farmers and land managers being required to measure the same element of natural capital in multiple ways and for different purposes. Agreed natural capital measures are needed to ensure efficient and consistent measurement at scale.
A new resource to support more consistent natural capital measurement
The Natural Capital Investment Initiative (NCII) is working to align and harmonise the way natural capital is measured. The initiative, led by Climateworks Australia and supported by National Australia Bank (NAB) in its first phase, aims to create an enabling environment for improved measurement at scale through greater consistency and increased financial incentives.
The NCII has just completed Phase 1, which produced a proof-of-concept Natural Capital Measurement Catalogue outlining a comprehensive set of natural capital measures at the farm or property level. The Catalogue was informed by existing measurement and accounting frameworks (e.g. UN SEEA) and aims to create a ‘common language’ for how we refer to and measure natural capital.
The Catalogue can be used by government, financial institutions, food supply chain organisations, industry groups and land managers. They can use it to identify the elements of natural capital they should measure, depending on their individual objectives. For example, if a bank is implementing a sustainability-linked loan for customers, the Catalogue could help them identify natural capital measures that will need to be included as part of their loan requirements.
The next phase of the NCII will focus on testing and using the Catalogue through pilot incentive programs. We will work with organisations providing the incentive (e.g. government, financial institutions and food supply chain organisations) to explore and demonstrate how farmers can financially benefit from measuring and improving natural capital on their properties.
Long-term benefits of measuring and incentivising natural capital
Investing in natural capital will deliver positive climate outcomes and can help support governments and organisations deliver their net-zero commitments. Natural capital investment can also be leveraged to support additional benefits such as increased productivity and resilience on farms, biodiversity conservation, and other sustainability outcomes.
Improving natural capital measurement on the ground will help farmers and land managers increase their overall profitability. Many are interested in the impact of increasing natural capital on production outcomes, including decreased input costs (e.g. fertiliser) as well as increased crop yields. Measuring natural capital can also generate additional financial benefits for farmers, including access to environmental markets, price premiums, and reduced lending rates. We are already seeing examples of these types of incentives. Both the federal government Carbon + Biodiversity Pilots as part of the Agricultural Stewardship Package and the Queensland Land Restoration Fund provide financial incentives for improving natural capital on farms.
Streamlining natural capital measurement will also allow governments and businesses to assess and disclose their nature-related risks and impacts in a robust way. It will provide consistent data to support sustainable decision-making and investment, which is becoming increasingly important to both investors and consumers. Additionally, businesses will soon be required to disclose environmental risks and impacts, as seen in the forthcoming Taskforce for Nature-related Financial Disclosures (TNFD).
Protecting and restoring nature is a critical part of addressing the climate challenge. Not only do natural areas capture and store carbon from the atmosphere, they also provide broad sustainability, social, and economic benefits to people and surrounding regions. Natural capital has emerged as a way of valuing and measuring nature, in order to inform action at the property, corporate, and government levels. It is critical to remove barriers to its measurement, in order to protect and enhance our natural areas.
Stay in touch: the next Food and Land Use systems article in this series will be published in two weeks. We hope you find it informative and useful – please share, discuss and offer your feedback.