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Profitability and Productivity from Natural Capital

Access to natural capital markets would put farmers at the forefront of the charge against climate change while improving on-farm productivity and generating additional income streams. That was the message from NSW Environment and Heritage Minister James Griffin at a recent Farm Writers’ Association of NSW event.

Minister Griffin used the opportunity to encourage landowners to consider natural capital as an asset class.

“Around the world, this market for environmental improvements and the investing opportunities which go with it are developing at light speed,” he said.

Natural capital – which includes soils, shelter belts, native vegetation, carbon, waterways, and wildlife biodiversity – is gaining interest from international markets. It has been regarded as a way to mitigate climate change, reverse biodiversity loss and improve agricultural productivity.

Many countries are developing natural capital markets, allowing landholders to access and trade credits accrued through undertaking ecological improvements to their farms.

In addition to the potential on-farm gains, access to global agricultural markets is increasingly dependent on environmental sustainability credentials. For net exporters like Australia, the race to comply with the requirements of trading partners is a priority.

“Whether we like it or not, other countries are bringing in legislation that penalises our exports if we are not doing this sort of thing,” Minister Griffin said.

During his speech, Minister Griffin said that the NSW Government was considering ways to introduce a natural asset market for farmers, including using accreditation schemes. Support from the government could also come in the form of incentives and market creation.

Roadmap to a Global Natural Capital Market

A recent thought piece published by the London Business School asserted that agriculture could play a pivotal role in helping the global environment to a “full recovery” in less than 30 years. Under the Nature Positive program, net loss would be fully restored by 2050, helping to mitigate the impacts of climate change and avoiding economic collapse associated with ecological degradation.

Currently, the global economy relies on the natural environment for around 50% of gross domestic product – valued at $44 trillion annually, according to the World Economic Forum. The World Wildlife Fund Living Plant Index argues that this figure is more likely to be around $125 trillion annually.

While protecting this economic value is a priority, developing natural capital markets could extend the value of nature-reliant industries. It has been estimated that the industry could hit $10.1 trillion annually by 2030 and employ 395 million people. That is in addition to the potential economic savings, such as the $300 billion annual bill for global natural disasters associated with climate change.

Discussions around potential natural capital markets are set to continue at the 2022 UN Biodiversity COP15 conference in Montreal.

Read more about natural capital opportunities in our previous article about the sale of NSW carbon credits to Microsoft.

Sources: Farm Online, London Business School

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