Natural capital

The NSW Government is leading the nation as the first state to join the global movement recognising the economic value of our environment.

What is natural capital?

Planting riparian revegetation and fencing a creek line prevents cattle entering waterways and reduces nutrients and sediment run-off as trees grow

Natural capital is similar to other forms of capital – financial, built (or physical), human, and social capital, all of which can produce economic outputs.

Natural capital is the world's stock of natural assets and includes:

  • the rocks and soil beneath our feet
  • our streams, rivers and oceans
  • the air
  • plants, animals and all living things.

From these natural assets, we derive services – so-called 'ecosystem services' – which are vital to our health, livelihoods and future. The water we drink, the air we breathe, our land for food production, and forests that help regulate climate and defend against floods are just some examples.

A strong economy needs a healthy environment

Previously, some have thought of nature as free-of-charge – and this has led to it being slowly degraded over time

With financial capital, we know that spending too much money accrues debt, which we need to pay back. It's the same with nature. If we draw down too much stock from our natural assets, we run up a debt which needs to be paid back by replanting forests, rehabilitating waterways or conserving biodiversity. Drawing down on nature without allowing recovery runs the risk of ecosystem collapse, which has compounding economic impacts.

New South Wales doesn't want to just halt environmental decline – we want to reverse it. Recognising nature as an asset provides a cornerstone for the state's economy which our people, business, finance and primary industries can benefit from.

Around the world, things are changing

Economists from the Department of Planning and Environment’s Science, Economics and Insights Division are leading the way with Natural Capital

Globally, people are waking up to the value of nature and its relationship with the economy.

According to the World Economic Forum more than 50% of global Gross Domestic Product is dependent on nature. Its Global Risks Report 2022 ranks one of the top 3 most likely and impactful risks humanity will face in the next 10 years as 'biodiversity loss and ecosystem collapse'. It describes this as: 'Irreversible consequences for the environment, humankind, and economic activity, and a permanent destruction of natural capital, as a result of species extinction and/or reduction'.

Similarly, the UK Government's commissioned review on the economics of biodiversity – the Dasgupta Review 2021 – found nature is a 'blind spot' in economics. It stated: 'we can no longer afford for it [nature] to be absent from accounting systems that dictate our national finances or ignored by economic decision makers'.

Financial markets have started to connect the climate and nature-related risk agendas. Leading financiers are integrating nature-related risks and opportunities in their approaches to sustainable investing, lending and underwriting practices.

Internationally, an initiative called Taskforce on Nature-related Financial Disclosures is working on framework to deliver in 2023 to financial institutions, to enable them to assess, manage and report on their dependencies and impacts on nature. The NSW Government was one of the first government members of this Taskforce. Right around the world, natural capital considerations have taken off in more than 30 countries, with organisations such as The World Bank looking to transform how we view and value nature.

Moreover, momentum is growing to 'mainstream biodiversity' in government policy. The UN Convention on Biological Diversity developed the Strategic Plan for Biodiversity 2011–2020, which has 20 Aichi Biodiversity targets, with target no. 2 aiming to 'mainstream biodiversity in policy decision-making and national economic accounts'.

Supporting farmers to introduce more sustainable practices

South Coast Landholder Sally Pryor repaired riparian vegetation & fenced off stock from her propertys creek to help improve downstream water quality

There are many sustainable ways for farmers to enhance nature, reduce emissions and increase productivity on their properties. 

Given almost 14 per cent of New South Wales’s carbon emissions come from our primary industries and land sector, it’s key that the NSW Government supports our farmers to transition to more sustainable practises. 

By encouraging sustainable farming practises, we can improve our stocks of natural assets while also moving closer to our Net Zero target of 50 per cent emissions reduction by 2030 based on 2005 levels. 

What we are already doing in New South Wales

Find out more about NSW Government natural capital programs.

These programs are designed to provide participants with options to support their business goals and deliver environmental benefits.

The NSW government is already actively involved in the natural capital space. Examples include the:

  • Sustainable Farming Program
  • Primary Industries and Productivity Abatement Program (PIPAP)
  • Private Land Conservation (PLC) Program
  • Biodiversity Credit Supply Program
  • Marine Estate Management Strategy
  • NSW Sustainability Bond Programme
  • Farm Innovation Fund
  • Forest Stewardship Program
  • Saving our Species program
  • Biodiversity Offsets Scheme
  • ongoing expansion of our National Parks estate.

The NSW Statement of Intent will interact with key Australian government programs in the natural capital space, such as the:

  • Emissions Reduction Fund
  • National Landcare Program
  • Oceans Leadership Package
  • National Soil Strategy
  • Agriculture Biodiversity Stewardship Package
  • National Reserve System.

What is a Natural Capital Statement of Intent?

The NSW Natural Capital Statement of Intent will be the first of its kind for any state in Australia. It will set the ambition for, and approach to, sustainably managing natural capital in New South Wales. The statement will provide a pathway to guide and inform government decision-making to conserve and enhance the environment while ensuring economic prosperity. It aims to:

  • The Natural Capital Statement of Intent provides a framework for economic recognition and valuation of the State's natural assets. It clarifies how government can help to create the conditions for natural capital markets that will be additional to the Government's other roles in protecting and improving the environment.
  • The Natural Capital Statement of Intent is not a new policy announcement, nor is it a new natural capital program. Some existing policies and programs already align with the principles and framework.

Next steps

Soil organic carbon can be used by farmers as a way to store carbon through changing their land management practices

The economic case for natural capital stacks up and there is ongoing consultation with key stakeholders who manage and invest in natural capital in New South Wales.

The Natural Capital Statement will explain and help expand NSW's role as a responsible steward of natural assets through the delivery of conservation and environmental market policies and programs. It will also empower us to embed the value of our environment into our policies, our plans and our investments.

The statement will set out the vision and pathway to enable the NSW Government to leverage first-mover advantage to attract international capital investment; and give landholders an increased opportunity to voluntarily participate in carbon, biodiversity and emerging natural capital markets.

The overall role of the NSW Government is to help establish the conditions for natural capital investments, including supporting system assurance.

Next steps to further develop the Natural Capital Statement of Intent will involve more conversations with investors, conservation groups, farmers and land managers.