Natural capital is a term used to refer to the benefits provided by nature such as air, water, land and other natural resources. It can include a diverse range of ecosystems services, cover crops, trees and soil. Natural capital is the foundation of all life on Earth – it ensures survival and supports economic activity by purifying water, generating oxygen and removing carbon dioxide from the atmosphere. Natural capital consists of living things like plants, animals and microorganisms that interact with soil, air and water to produce these services.
The importance of natural capital has been recognized as a key factor in economies thriving now and into the future that business needs to consider when making decisions across industries including finance, accounting, manufacturing and construction. Businesses need to value natural capital assets for their investments because if left unmanaged or disregarded, natural resources can be depleted or destroyed leading to catastrophic impacts for the environment and communities dependent on them environmentally or economically. As such investors are now incorporating natural capital considerations into how they access their portfolio risk which is why initiatives like BlackRock’s focus on ‘natural capital’ are becoming more prevalent ahead of AGM season show with businesses understanding that sustainable investments require looking at how nature works properly through its supply chain and ‘investing’ in its preservation for future generations.
Why Natural Capital is Important
Natural capital is a term used to describe the planet’s natural resources—air, water, minerals, forests, and soil—that together provide essential benefits (or ‘ecosystem services’) that sustain human life. It encompasses many aspects of our environment—from the air we breathe and the climate we experience to the species and habitats we interact with.
The importance of natural capital runs deep, from environmental protection and economic sustainability to human health. Natural capital is a key part of global economic development as it supports crucial aspects of human society including: food production, access to clean water, habitat for biodiversity, cultural heritage sites and recreational activities. In addition, natural capital helps regulate air quality and climate; absorbs pollution; minimizes floods; provides natural barriers against extreme meteorological events; creates livelihoods for local communities; offers wilderness services like pollination; offers raw materials such as timber; requires few management inputs other than protection; and helps boost global health outcomes like expanding nutrition security through sustainable food production systems in areas including forestry management.
Despite its tremendous importance in maintaining a healthy environment and enabling sustainable economic growth, natural capital is often overlooked when making fundamental decisions related to land use planning. By elevating the subject of “natural capital” to greater prominence in both conversations around business models and ahead of AGM seasons – marked by heightened interest among shareholders – BlackRock overprominent firms have renewed an idea which has been around for years: resource management isn’t simply about outcompeting the competition — it’s about recognizing how nature can optimize operations too.
Impact of Natural Capital on the Environment
Natural capital, which refers to the resources, products and services of nature such as air quality, clean water, soil health and biodiversity, plays an important role in sustaining the planet’s ecological balance.
As global market leader BlackRock has recently increased its focus on natural capital, it is important to take a deeper look into the impacts of natural capital on the environment.
This article will look into the various ways in which natural capital affects the environment.
Benefits of Natural Capital to the Environment
Natural capital can bring numerous benefits to the environment. These include protection of biodiversity, promotion of food security, safeguarding of natural resources, and mitigation of climate change. The direct and indirect benefits that ecosystems provide to people comprise ‘ecosystem services’. Natural capital refers to natural resources and the ecosystem services they support; these include both tangible resources such as timber, clean air, pollination or storm protection, as well as intangible ones such as leisure or inspirational experiences.
The variety of vital ecosystem services provided by nature is vital for well-being in modern societies – from mitigating floods to providing food products, reducing air pollution and securing genetic materials for medicines. Healthy ecosystems are a public good that contribute to economic growth and underpin sustainable development worldwide. Natural capital can help reduce reliance on other sources of energy such as fossil fuels while providing recreation facilities and inspiring escapes from urban areas through parks and coastal ecosystems. Floral networks protect water supplies while fish stocks continue feeding entire communities freely with little oversight or maintenance costs beyond habitat protection efforts.
The protection of nature forms a valuable asset for society in its own right that contains economic value by sustaining economic activity directly – through leisure activities, recreation events etc. It also has cultural value – with spiritual enrichment activities -and can downenable rural revitalization which further strengthens these benefits even more!
Natural capital therefore provides an invaluable foundation for many industries by allowing them access to ecosystem services such as pollination or cleaning water supplies – all without having to invest in activities equivalent to theirs which would both cost more money and generate greater levels of environmental damage due over-exploitation!
Challenges of Natural Capital to the Environment
Although natural capital offers numerous benefits to the environment, such as improved air and water quality, protection against erosion and floods, provision of food and genetic resources for human use, it is threatened by human activities. The threats include unsustainable land use changes, habitat destruction due to urbanization and agriculture, unsustainable harvesting of species’ populations, energy production-related pollution, impacts from intensive livestock production and rising levels of atmospheric carbon dioxide leading to climate change.
The loss or degradation of natural capital can cause a range of negative effects including biodiversity loss, nutrient over-enrichment in water bodies leading to excessive algal growth that reduces dissolved oxygen levels in water bodies (eutrophication), desertification due to reduction in soil fertility and increased rate of erosion. These can have significant economic consequences. For example, habitat destruction often damages downstream fisheries that affect the livelihoods of local communities reliant on fishing for their income.
Furthermore, some ecosystems provide valuable services like coastal protection from flooding during extreme events or buffering against extreme climatic events such as drought or wildfires. Degradation or loss these services results in an increase in damage from floods or other climatic events with associated increases in public expenditure for repair work. Additionally, the resulting stress on human health is often only visible after years especially when such degradation affects food supplies resulting negatively alters diets subsistence farmers who lack access to alternate resources like store bought foods containing adequate vitamins and minerals.
BlackRock ups focus on ‘natural capital’ ahead of AGM season
BlackRock, the world’s largest asset manager, is making a concerted effort to invest in “natural capital” in order to sustain long-term growth.
Natural capital is defined as the world’s stock of natural resources, such as forests, wetlands, and soil fertility. By emphasizing the importance of natural capital in the environment, BlackRock hopes to spark a larger discussion in the upcoming AGM season.
BlackRock’s Increased Focus on Natural Capital
BlackRock, the global leader in investment management, recently announced that it is placing an increased focus on “natural capital,” or the renewable natural resources and services provided by nature, over traditional financial capital.
This increased focus brings environmental considerations to all of BlackRock’s investments and asset allocation decisions and will ensure that companies take more responsibility for their environmental impacts, such as carbon emissions and resource degradation. This initiative comes ahead of BlackRock’s approaching annual general meeting season and will likely expand into a comprehensive strategy by 2021.
Reportedly, BlackRock is expected to announce new targets to reduce greenhouse gas emissions in its portfolio companies to net zero before 2050 and might form a climate subcommittee where members would seek stronger commitments from other shareholders on climate related issues. It has also proposed that investors weigh climate measurement data when deciding which companies to back.
The aim of this focused attention on natural capital is aligned with the main principles of responsible investing – preserving financial security while promoting positive social change – and is an example of BlackRock’s commitment towards sustainable development. By taking steps towards protecting nature through this approach, Blackrock may provide an international model for environmental action from other large investors worldwide.
BlackRock’s Strategies for Sustainability
BlackRock has long been dedicated to advancing sustainable investing, and their recent commitment to emphasize the importance of natural capital reaffirms this dedication. Natural capital is a term used to describe natural resources that are part of the environment and play an important role in supporting economic activity.
BlackRock understands the potential risks associated with unsustainable development and deforestation and implemented strategies to help preserve natural resources. Among these strategies are:
- Utilizing climate analytics to better measure climate-related risk;
- Incorporating environmental elements into their investment decisions;
- Introducing new sector product mandates that focus on environmental stewardship;
- More actively engaging with companies on ESG issues, including climate change;
- Utilizing their conversations with companies around inventorying physical resources, such as freshwater and soil.
These initiatives enable BlackRock’s investors to invest responsibly without compromising performance. Ultimately, these efforts enable BlackRock to more effectively assess climate risks and allocate resources more effectively for enhanced sustainability outcomes over time.