Natural capital: are you thinking about it?

Britain’s overall stock of natural capital is put at £1.6 trillion. Yet few infrastructure companies have it on their radar as a risk and opportunity says Chris White.

Chris White, AECOM

In a recent speech, Liz Truss, Secretary of State for Environment, Food and Rural Affairs, estimated Britain’s overall stock of natural capital at £1.6 trillion. Given infrastructure’s impact and dependency on natural capital, it is perhaps surprising that companies in the sector are yet to capitalise on this untapped wealth.

"Defra committed to developing a 25-year plan to improve natural assets and announced its support for the idea of natural capital accounting"

However, many organisations operating in the infrastructure sector may not be fully aware of what natural capital constitutes, let alone have it on their radar as a business risk and commercial opportunity.

Defined as the world’s stocks of natural assets, including soil, air, water and all living things, natural capital yields a flow of valuable ecosystem services that bring both opportunities and risks to companies.

For example, a stock of trees in a woodland can provide important timber resources for sale or production purposes; reduce risk from flooding by slowing water flows; offset carbon emissions in a cost-efficient manner; or provide marketable opportunities such as recreational mountain biking. Developing an understanding of a company’s natural assets is a first step towards realising the benefits that natural capital can bring.

And momentum for the natural capital agenda is only likely to grow, no doubt buoyed by government support for its place in future UK policy.

In response to a report by the government-funded Natural Capital Committee last month, Defra committed to developing a 25-year plan to improve natural assets and announced its support for the idea of natural capital accounting. Defra has also said it would strive for all publicly funded infrastructure investments to make a positive contribution to protecting and enhancing the UK’s natural environments.

Going forward, it will therefore be harder for companies in the infrastructure sector to overlook natural capital in their planning and decision-making.

"Companies that develop an understanding of their dependencies on natural assets are better placed to protect their bottom lines"

Fundamentally, businesses that do not recognise the value of their natural assets are missing out on important environmental, social and bottom-line benefits. Many companies may not realise, for example, that significant cost savings can be achieved through more efficient and innovative use of natural assets.

This includes simple measures like planting wildflower meadows on verges that border transport routes, which in practical terms is a great way to improve a company’s natural capital: it is very low cost to implement and can reduce site maintenance costs as mowing isn’t required. It also brings benefits for local communities in terms of aesthetic value, as well as for pollinators and other wild species by providing much needed habitat.

In addition to direct cost savings, there are also regulatory, reputational and operational benefits associated with the implementation of a natural capital strategy. Looking at natural capital in line with environmental legislation can help businesses understand how using their assets differently could help them more effectively achieve compliance, as well as prepare them for possible changes to regulation in the future.

One of the greatest advantages of introducing a natural capital strategy is the increased understanding of risk businesses can gain by taking stock of their natural capital.

The effects of climate change are impacting the day-to-day operations of organisations in the infrastructure sector more than ever. Take the flooding of rail lines during severe winter storms, which have caused costly interruptions to passenger services on a number of routes in the past few years. Natural assets along these routes, such as woodland or wetland areas that reduce the risk of flooding, can help mitigate threats before they affect business continuity. Companies that develop an understanding of their dependencies on natural assets are therefore better placed to protect their bottom lines.

The reputational benefits of introducing natural capital strategies are also important to the infrastructure sector, as they can aid community buy-in for new schemes. Delays to project delivery as a result of local communities rejecting plans show that building support early on is vital to pushing through new infrastructure. Involving stakeholders in developing plans for natural assets – along with proposed infrastructure – brings new benefits to communities and helps increase their buy-in to the project. Carbon offsetting schemes, for example, could be achieved through woodland planting providing an opportunity to create new recreational areas along a new transport route. Engaging with communities in this way can have a positive impact on an organisation’s reputation at the very point it is needed.

Despite these benefits, other sectors are considerably more advanced in taking account of their natural assets. AECOM has worked with electricity and gas company National Grid on a pilot programme aimed at evaluating how its operational and non-operational landholdings could be put to better use. The study found that natural capital could deliver in the region of £18 million of additional value from company land that is currently underutilised.

Financial benefits like this are hard to ignore. But the challenge is to convince industry that a natural capital strategy is not merely a ‘nice to have’ but essential to the bottom line. It seems Liz Truss is committed to this mission, with a keen eye on how nature can be fully valued when making decisions. Only then can natural capital become a mainstream business issue.

Chris White is Senior Environmental Economist, AECOM

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The developments in technique mean the valuation of Natural Capital in the country as a whole and under the ownership of every organisation should become a major part of the accounting process. However, this value also needs to include the human health, social and mental benefits of natural and open spaces. The big challenge then becomes how to value the effect of erosion by development, the wider cost of severance by linear infrastructure such as new roads and railways as well as the consequent impacts. At what point is the value too low to make it unsustainable? Or should there be a policy of no erosion of this capital and therefore any loss has to be replaced by something of higher value to compensate? These issues must be brought into major development and housing policy before it is too late.