Valuing Natural Capital

Nature’s value: integrating biodiversity with economic priorities

By Jennifer Morris and Fred Hu

• Biodiversity is essential but under severe threat, with a major funding gap to address.
• Urgent action from both public and private sectors is needed to close this gap.
• Investing in nature should be a collaborative, not fragmented, effort.

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.

The World Bank estimates a $2.7 trillion GDP loss by 2030 if key ecosystem services collapse.

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 Nature-related 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.

Reversing biodiversity loss by 2030 requires around $700 billion annually – far more than current funding levels

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.

This article was first published by the World Economic Forum .