Natural capital: the investment value of the world around us

Natural Capital can be defined as the world's stocks of natural assets which include geology, soil, air, water and all living things.

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The understanding of natural capital as an asset class is growing within the finance industry, the broader business community and lenders across the nation and region.

“When I think about natural capital … it's an emotive conversation for me. It's a cultural conversation and it's an economic conversation. And I think that's where we need to really work hard to find the balance.” - Ben Krasnostein

Globally people are realising the value of nature and its relationship to the economy. According to the World Economic Forum, more than 50 per cent of gross domestic product is dependent on nature.

Its global risk report in 2022 ranks one of the top three ‘likely and impactful risks’ humanity will face in the next ten years as “biodiversity losses and ecosystems collapse”. It describes irreversible consequences for the environment, humankind and economic activity from a permanent destruction of natural capital as a result of species extinction and/or reduction.

We see preservation and restoration of natural capital as a top priority. However natural capital can mean different things to different people.

I recently moderated an interesting panel discussion on this topic as well as the growing capability in sustainable finance and environmental markets with experts in this field. They were:

  • Ari Gorring – Co-CEO, Pollination Foundation
  • Ben Krasnostein – Founder and Managing Director, Kilara Capital
  • Damein Bell – Board Member for Gunditj Mirring Traditional Owners Aboriginal Corporation
  • Rayne van den Berg – Chief Financial Officer, Forico
  • Megan Flynn – Managing Director and Chief Growth & Impact Officer, Pollination

Below is an edited version the discussion.

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Christina Tonkin: What does natural capital mean to you?

Rayne van den Berg: As Tasmania's largest private plantation forestry company, we've got a passion for sustainability that goes back quite some time. We've published one of the first examples of natural capital reporting in the world. This is publicly available on our website. We've essentially measured and valued the nature and the natural capital ecosystem services on our estate and that's driving real change in our business.

Damein Bell: Just recently we finally opened our operations for commercial tourism, visiting our stories and products with Budj Bim. It’s the world's oldest engineered landscape for eels. It's the world's oldest, largest freshwater aquaculture system that our ancestors built over the past 8000 years.

Among our volcanic landscapes was wetlands. It's incredible. For our community, our country, natural capital is beyond natural capital. We have a continuing connection to our country, to everything that's on our country because it sustains us.

It also informs our identity. It's not just those singular items either. It’s a story that flows through the items – through the birds, to the trees, to their animals, to the weather, to the economy, to the seasons. So when we talk about natural capital it goes beyond that idea. It really is part of people's identity.

What's really encouraging is over the past couple of years the broader community is having that conversation. Understanding the conversation. In Victoria, we're in the midst of a treaty with the Crown and learning all the lessons have been learnt. We're really looking forward to what happens. Natural capital isn't just about natural assets. It's about people and their stories as well.

Ari Gorring: As Damein mentioned, understanding that intrinsic relationship between people, nature, place and how important that is. It’s about bringing back those stories and that connection to place and connection between us all. I think it’s very critical and plays a role in how we think about natural capital.

Megan Flynn: I do like to lead these discussions with the other side of the driver. For me that's the extraordinary opportunity. Christina mentioned that 50 per cent of economic value is dependent on nature in a moderate or significant way. I think it's about $44 trillion.

But actually 100 per cent of our economic value is dependent on nature in some way. And that presents an extraordinary opportunity for investment.

Ben Krasnostein: When I think about natural capital and some of the comments I've heard here, it's an emotive conversation for me. It's a cultural conversation and it's an economic conversation. And I think that's where we need to really work hard to find the balance.

When we're trying to validate, monetise, commercialise our natural capital base we need to be very cognisant of a range of issues and complexities. This includes cultural complexity.

It includes a lot of complexity in terms of the way our ecosystems function and bolt together. We haven't got that right yet. But to me, as Christina’s pointed out, 50 per cent of global GDP is significantly dependent on our natural capital base.

We need to get our heads around it. We need to do it quickly because if we don't, we're going to destroy the very asset we rely on to produce our goods and services. I think the other thing we need to think about is how we do that. How do we truly value the associated costs of all goods and services? It's a big challenge but we're certainly up for it.

Christina Tonkin: That's a good place to start. Ben, is that the way we should be thinking about it? Should we be thinking about natural capital as a sort of separate asset class? Or should we be embedding natural capital thinking in all the different asset classes that dominate the investment landscape?

Ben Krasnostein: I've been thinking about this question and if I had to, I’d say the latter. It’s certainly an asset. Our natural capital base is an asset which we need to value and we need to understand, just like any asset on our balance sheet.

To simplify it: if you've got a limited amount of resources and a limited asset base on your balance sheet and you use it up too quickly, you're going to have a problem. If you're not using it in a way that's then regenerative, you're also going to have a problem. So, it's certainly an asset.

An example might be a carbon project on land: you go and buy some land that you run a project sequestering carbon and that's a regulating service when it comes to ecosystem services.

But the asset class itself feels more like an agricultural investment or even an infrastructure investment with soil as the infrastructure. And you’re generating a commodity called carbon, with an offtake arrangement in place.

For certain investors that’s where they want to park some money. At the same time you might be looking at technology offerings – (as) an asset you need to understand how these services and systems work.

If you're looking at it through that lens, it’s now a technology investment and you might be investing in start-up businesses.

Christina Tonkin: You're working with a lot of companies on their climate plans. Can you speak about that and the role of protection of biodiversity and how that is increasing in prominence?

Megan Flynn: People's awareness of the intrinsic link between climate and nature is increasing in prominence. There has been extraordinary momentum in this space since Pollination started two and a half years ago.


It's shifting just from risk to the opportunity set and I think that's really exciting. In the present opportunity set is monetisation of climate levers - carbon is a good example.


Those organisations leading are the ones thinking two steps ahead – looking at opportunities in valuing nature. They’re thinking about the upside that will come from exciting new investments in emerging asset classes like natural capital.

Christina Tonkin:  Rayne, I know your company has maintained a natural capital report and assurance associated with that. What did you learn along the way in developing that? And how has it influenced the strategy within your company?

What tips do you have for everyone in the audience who is thinking about this issue of natural capital? How do you measure it and how do you value it?

Rayne van den Berg: For us it was about measuring that value and changing the conversation about where the value was. I was fortunate when I came to the business there was lots of measurement of litres, hectares and tonnes etc. We translated that to a common language of monetary dollars to put a conservative monetary value to nature.

And what we found was, conservatively, we had more than three times more value in our natural capital assets than on our traditional balance sheet. That changed the conversation in our business around how we treated natural capital and how we saw the role it played in our larger value. It was a huge ‘a-ha’ moment for us.

We started with only a handful of our most material ecosystem services and developed methodologies around that. I would suggest people try and simplify it and not let the perfect get in the way of the good.

A lot of businesses are already measuring things that matter. It's just about telling that story in a different way and giving it the relative importance.

Christina Tonkin: Damein, you spoke about what nature means to your community and I’m wondering if you want to add to that? How can we drive better connectivity between the vast wealth of knowledge that sits within the Indigenous community in Australia?

Damein Bell: I’ll say it's not all about the money with First Peoples.  What's being picked up by the mainstream community is understanding these natural features as their own entity.

We have examples in Aotearoa New Zealand of the Whanganui River. And here, the Yarra River has had a form of recognition from the work of the Wurundjeri and State Government.

How do we get more country to look after the beings that are there, to look after that spirit, to look after that story, to look after that identity?

Over the past six months we had to come up with a new masterplan for the Budj Bim landscape in regards to our social and economic future. This time we not only included the commercial realities and aspirations of what we wanted to do, but also what we wanted to do.

We tied our community outcomes to our commercial outcomes and that's the first time we've done that. Within that planning process we used the UN Sustainability Goals because they communicated with us.

Towards the end of it we had to design some new infrastructure for down at Tae Rak, Lake Conda which is over 8000 years old. It was incredible because they finally got to the stage – after 20 years – of what to be mindful of when designing infrastructure on country.

And I thought ‘ahh, at last they’ve got it!’. But it was only in preparation for talking with you all today that I realised ‘no, at last I got it – an Indigenous voice at the table’. 

We need to be at the table. We need to understand that if you're going to put a great big renewable energy facility on our country, it's still going to take us time. It has to happen because we have to reduce emissions. We have to do all that but don't do it without us.

Don't come to us as a second-hand thought or a requirement under the Native Title Act. Sit down with us beforehand and there's plenty of tools to do it, including the UN Sustainability Goals.

That Indigenous voice at the table needs to be resourced, it needs to be heard, it needs to be there to help make decisions because it's going to impact our country.

Christina Tonkin: I think that's super powerful. Proactivity to unlock the fabulous knowledge that's been built up over thousands of years of management of the country.

Ari Gorring: Within the Pollination Foundation we're starting to think about how we bring the community into the heart of our solutions. Because the innovation and the knowledge that's on country is profound and often isn't at the table when we’re designing these solutions.

I was recently at a conference in Canberra, and across the conference there was this discussion about ‘what did it look like before Captain Cook arrived on our shores?’ What was the economy here in Australia before the settlers arrived?’

People were farming the landscape using fire. Native grains were prominent, the harvest was stored and used for cooking. There was this reciprocal relationship with nature and the seasonal indicators told people when they could be harvesting from country and taking resources from country.

There were very strong rules around how resources were distributed within communities and families – who had the right to harvest what species. As well as the trade that happened between nations and the rules and the laws that governed it.

We need to be thinking differently. We need to bring different people to the table. Aboriginal people said ‘we know that if we put our fire back into country, that will reduce greenhouse gas emissions and will stop wildfires’.

And through collaboration with science, that method has now been proven and is part of Australia's Emissions Reduction Fund. That has generated more than $50 million for Aboriginal communities across northern Australia every year. They then invest that money into paying the young people and the old people to be back on country and put fire back on country in the right way.

Christina Tonkin: If you think about metrics, you can't fix what you can't measure. What do you think sustainability metrics should look like?

Rayne van den Berg: If you measure what matters you can change things in a positive way. That's probably what started our valuation: measuring and then valuing and presenting it. And having that conversation both internally and with our communities.

If we want financial markets to provide the solution to these big challenges of climate change and biodiversity loss – and ensuring it's inclusive for all our communities – we have to start measuring.

Megan Flynn: In our work with boards and executive teams across Australia and the globe, we see them really struggling with this because it's an absolute alphabet soup out there. It is an extraordinary challenge for organisations to wrap their minds around the plethora of standards and metrics thrown at them.

I get really concerned when this is thought of as a compliance exercise - because that’s not going to change anything. Writing another report, ticking another box is just not going to do it.

It's not addressing the systemic issues. But metrics are absolutely critical because the CFOs of the world need to be able to measure and integrate an understanding of valuation and the impact.

That's where I think the game changers have been; things like the Taskforce on Climate Related Financial Disclosures (TCFD).

Organisations mustn’t sit this in a sustainability team in a corner of a business. It needs to be owned by those making the strategic decisions. Hopefully the sustainability team are part of that strategic decision making.

Ben Krasnostein: We’re starting to measure the carbon intensity per dollar of revenue of an organisation. If we're not improving on that as an investment manager, the same way if we're not improving on their EBITDA, then we're not actually achieving the outcome we're seeking.

Christina Tonkin: Completely agree. At ANZ we have a target to help customers transition and protect natural capital. That target is $50 billion by 2025 and we're well on the way. At our last reporting period it was just over $30 billion.

Christina Tonkin is managing director of corporate finance at ANZ Institutional

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Christina Tonkin is Managing Director of Corporate Finance at ANZ Institutional

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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