HOW NACs VALUE NATURE

Natural Asset Companies are the first nature-positive investment vehicle that incorporates the total economic value of nature.

HOLISTIC VALUATION FRAMEWORK

Nature has value. Yet the value of nature’s production is largely excluded from the financial system. In language used by economists, neither the positive nor negative externalities are adequately accounted for and valued. Existing financial reporting does not recognize the negative externalities of degraded or lost natural ecosystems, such as greater flood risk, pressures on public water supplies, or more severe wildfires. Positive contributions related to nature’s production, such as natural infrastructure that promotes resilience to floods, are similarly left out.

Bringing nature into the mainstream of our economy requires a systematic approach for measuring and reporting on the total economic value of nature. That’s why NACs have adopted a holistic valuation framework that incorporates intrinsic value, ecosystem service production value, and option value.

ECONOMIC VALUES CAPTURED IN A NAC

INTRINSIC VALUE

  • Existence: The value of protecting the continued existence of an ecosystem

  • Bequest: The value of ecosystems being available to future generations

ECOSYSTEM SERVICE PRODUCTION VALUE

  • Reporting in EPR: Ecosystem services historically left out of the economy

  • Reported in GAAP / IFRS: Goods or services already monetized

OPTION VALUE

  • The potential for monetization of ecosystem services in the future

INTRINSIC VALUE

Nature has intrinsic value. We appreciate the existence of nature’s beauty, the complexity of ecosystems, the majesty of an old growth forest, the colorful life of a coral reef, and the wonder of an elephant, whale, or jaguar. NACs are designed to incorporate existence value, which is the value people place to ensure the continued existence of ecosystems and species, and bequest value, which refers to the value of preserving nature for future generations.

ECOSYSTEM SERVICE PRODUCTION VALUE

Ecosystem services are the benefits produced by nature that support the global economy and, more broadly, humanity. Ecosystem services produce approximately $125 trillion in value annually. Natural asset companies incorporate a comprehensive suite of ecosystem services – including 38 in total – comprising four primary categories: provisioning services; regulating and maintenance services; cultural services; and the flow of non-use values.

To value ecosystem services, NACs have adopted the United Nations System of Environmental-Economic Accounting - Ecosystem Accounting Framework (SEEA EA) as a standard and adapted it to make it fit-for-purpose.

  • The products obtained from ecosystems, such as water supply, wild fish, animals, plants, crops, and wood.

    • Crops

    • Grazed biomass

    • Livestock

    • Aquaculture

    • Wood

    • Wild fish and other natural aquatic products

    • Wild animals, plants, and other biomass

    • Genetic material

    • Water supply

    • Ornamental resources

    • Medicinal resources

  • The benefits obtained from the regulation and maintenance of ecosystem services, including flood mitigation, soil retention, and global climate regulation.

    • Global climate regulation

    • Rainfall pattern regulation (sub-continental scale)

    • Local (micro and meso) climate regulation

    • Air filtration

    • Soil quality regulation

    • Soil erosion control

    • Landslide mitigation

    • Solid waste remediation

    • Water purification

    • Baseline water flow maintenance

    • Peak water flow mitigation

    • Coastal protection

    • River flood mitigation

    • Storm mitigation

    • Noise attenuation

    • Pollination

    • Seed dispersal

    • Pest control

    • Disease control

    • Nursery population maintenance

    • Soil formation

    • Habitat maintenance services

  • The non-material benefits obtained from ecosystems, such as recreation and visual amenities.

    • Recreation-related

    • Visual amenity

    • Education, scientific, and research

    • Spiritual, artistic, and symbolic

  • The wellbeing that people derive from the preservation of the environment for current and future generations, including ecosystem and species appreciation, existence value, and bequest value.

    • Ecosystem and species appreciation / existence / bequest

OPTION VALUE

Healthy nature, when conserved and managed, may deliver benefits in the future that are not recognized or monetized today. This is a valuable option, which includes:

  • The value for ecosystem services not yet identified or quantified. For example, there are still undiscovered economic values in nature – a new drug, a new crop, a gene, or a design feature that mimics nature.

  • Future monetized payments for ecosystem services. The option to cash flows from ecological attributes that may be monetized in the future. This encompasses monetization of new or expanded carbon or biodiversity credits, or other kinds of ecosystem services-related credits that do not yet exist.