NATURAL resources are the single most important input to the global economy. Whether it is raw materials, water, flood protection, biodiversity or pollination, nature provides most of the capital businesses need for the production of goods and services.
Schroders argues we all have a role to play in protecting these resources so that humans can continue to benefit from it for generations to come.
The asset management company describes natural capital as elements of nature that provide important benefits called “ecosystem services”. These include CO2 sequestration or removal, protection from soil erosion and flood risk, habitats for wildlife, pollination and spaces for recreation and wellbeing.
“Nature provides critical societal benefits to individuals and communities around the world.
“The combination of soils, species, communities, habitats and landscapes which provide these ecosystems services are often called ‘assets’,” it explains.
Meanwhile, machinery, vehicles, buildings and other manufactured items are termed “produced capital”, while human capital refers to the knowledge, judgement and experience that we as humans contribute.
“All three sources of capital work together and form the basis of economic activity,” Schroders says.
It notes natural capital can be split into renewable and non-renewable categories. Oil, gas and minerals, for instance, are non-renewables.
It says there’s a critical threshold with these assets: if we deplete its stocks past the tipping point, the capital is no longer renewable.
It is therefore crucial to maintain, enhance and protect these resources so that they are available to future generations.
Investors can play their part by allocating capital towards investments that preserve our natural environment and understanding how companies in their portfolios use and rely on natural capital.
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