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    Article

    Preserving natural capital through innovation

    Jan 8, 2025

    LinkedInX (Twitter)EmailCopy URL

    By Ed Winters

    Businesses and investors may find unique opportunities in utilizing innovation to safeguard the environment and promote sustainable growth.

    The importance of innovation in promoting and preserving natural capital—the world's stocks of natural assets that include geology, soil, air, water, and all living things—has garnered attention of late. Innovation has always driven economic and social growth, but its contributions to natural capital have gained increased attention in recent years.

    The convergence of innovation and natural capital gives a “one-of-a-kind” opportunity to support sustainable development while protecting natural resources, which are increasingly threatened by worsening environmental degradation.

    What is natural capital?

    Natural capital refers to stocks of natural assets that provide essential ecosystem services that support biodiversity and human well-being. These services include:

    • Provisioning: Natural resources such as food, water, and raw materials. The global fisheries sector alone is valued at approximately $362 billion annually, underscoring the importance of sustainable management.
    • Regulating: Climate regulation, flood control, and disease regulation. The value of pollination services provided by bees is estimated at $235–577 billion annually worldwide.
    • Cultural: Recreational, aesthetic, and spiritual benefits, with nature-based tourism generating about $600 billion per year globally.
    • Supporting: Nutrient cycling and soil formation are vital for food production. Healthy ecosystems contribute approximately $125 trillion in services each year.

    Recognizing natural capital as an economic asset ushered in a paradigm shift in how businesses and governments approach resource management and environmental sustainability.

    Innovations in natural capital management

    Innovation is the process of developing new ideas, products, or methods that add value or improve upon existing solutions. In the context of natural capital, innovation takes on several forms:

    Technological Innovation

    Technological advancements are at the forefront of sustainable resource management. Innovations in clean technologies are transforming how we harness energy without exhausting or depleting natural resources:

    • Precision Agriculture: This approach uses technology to optimize farming practices. According to the Food and Agriculture Organization (FAO), precision agriculture can increase crop yields by 20–30% while lowering inputs like water and fertilizers by up to 50%.
    • Water Management Technologies: Innovations like desalination are becoming increasingly vital, especially in arid regions. The global desalination market is expected to reach $30 billion by 2025, driven by demand for fresh water.
    • Renewable Energy: The global renewable energy market reached a value of approximately $1.5 trillion in 2020, with wind and solar energy accounting for much of this growth. The International Renewable Energy Agency (IRENA) reported that renewables could provide 86% of global power by 2050.

    Business Model Innovation

    Business models that prioritize sustainability and the responsible use of natural capital are emerging rapidly. Circular economy principles focus on minimizing waste and maximizing resource efficiency:

    • Product-as-a-Service: This model is gaining traction in industries like automotive and electronics. Companies like Philips offer lighting as a service, which encourages product longevity and reduces waste.
    • B Corporation Movement: Recent data shows more than 6,000 certified B Corporations operating in more than 80 countries, demonstrating a growing commitment to social and environmental performance.

    Policy and Governance Innovation

    Innovative legislation and governance frameworks can facilitate sustainable practices and the conservation of natural capital:

    • Payment for Ecosystem Services (PES): A report by the World Bank indicated that PES schemes can lead to an increase in forest cover by 3–30%, showcasing their effectiveness in encouraging ecological stewardship.
    • Regulatory Frameworks: The European Union's Green Deal aims to make Europe the first climate-neutral continent by 2050, incorporating stringent regulations to reduce carbon emissions and promote sustainable practices.

    Natural capital innovations can present challenges

    While innovation holds tremendous potential for enhancing natural capital, several challenges remain:

    Access to Technology

    Developing regions often lack access to the latest technologies. According to the UN, over 1.3 billion people still lack access to electricity, highlighting the need for sustainable energy solutions that are both affordable and accessible.

    Measuring Natural Capital

    Quantifying natural capital and the benefits derived from ecosystem services requires a multifaceted approach. The Natural Capital Coalition estimates that integrating natural capital into financial reporting could unlock approximately $5 trillion in business opportunities.

    Balancing Economic Growth and Sustainability

    Striking a balance between economic development and conserving natural capital is essential. The World Economic Forum reported that over 50% of global GDP is moderately or highly dependent on nature, stressing the importance of sustainable practices.

    Collaborative innovations for sustainable natural capital management

    Innovation is a key driver in the effort to protect and enhance natural capital. By embracing technology, business model, and policy innovations, we can create a more sustainable future that respects and preserves the natural resources on which we all depend.

    As we move forward, collaboration among governments, businesses, and communities will be key to unlocking the potential of innovation in driving the sustainable management of our planet’s natural resources.

    In this rapidly changing world, embracing innovation to sustain natural capital is not just an option—it is a necessity. By leveraging innovation, we can transform challenges into opportunities, ensuring that natural capital is protected and enhanced for the benefit of all.

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    The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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