What is natural capital?

Natural capital is the term given to elements of the natural world that have value to society and can be considered assets, for example biodiversity, water and forests. We derive "ecosystem services" from natural capital, such as the pollination of crops by insects or natural flood defences. Natural assets are also crucial to many of our day-to-day goods, including fuel, clothing and building materials.

Increased awareness of the significance of natural capital has led to businesses engaging with the topic. For some, it's a result of legal requirements, such as the biodiversity net gain regime in England, and for others it's on a voluntary basis. The disclosure recommendations and guidance published by the Taskforce for nature-related Financial Disclosures (TNFD) has given businesses an approach to follow should they wish to consider their nature-related dependencies and impacts, as well as associated risks and opportunities.

As we gain a better understanding of the impact of business on natural capital, you may find that by engaging early you have an advantage over your competitors. This could be that you are already on top of any new legislation that is introduced, or that you are prepared should your key stakeholders scrutinise your business.

Given the complexity of the area, it will be important for your business to develop a carefully tailored natural capital strategy. Our expert lawyers can help.

What you need to know now

The legislative approach to natural capital is still evolving and it's an area where new obligations are likely to be introduced. For example, additional reporting may be required. There may also be incentives or penalties introduced to reduce the use of certain natural assets, such as carbon or water.

To prepare for the introduction of new measures, you are well-advised to start considering your business's impact on nature now. You can do this by making sure you are up to date on any mandatory and voluntary regimes that may apply to you.

What's on the horizon?

We are seeing increasing measures being put in place to encourage businesses to consider the impact of their operations on nature. While some of these are currently voluntary, such as disclosing against the framework introduced by the Taskforce for Nature-related Financial Disclosures, mandatory obligations are also being introduced. These include the EU Deforestation Regulation and the Corporate Sustainability Due Diligence Directive.

While the mandatory measures may currently be limited, the pressure on your business to engage with this agenda is likely to increase, for example from consumer choices or shareholder action.

How we can help you

We can support you on all aspects of natural capital, including:

• navigating the mandatory and voluntary carbon markets
• biodiversity net gain, including assisting with purchase agreements for offsite biodiversity units
• nature markets
• biodiversity strategies for your business
• planning requirements relating to nutrient and water neutrality
• corporate reporting requirements, for example the EU Deforestation Regulation or Corporate Sustainability Due Diligence Directive
• complying with legal requirements regarding waste and resources
• sustainability requirements for packaging and products