In the first of four insights, we explain why natural capital is a foundational input into economic activity. Forests, soils, rivers, wetlands, oceans and biodiversity are productive assets that generate products such as timber or food and are natural regulators of water flows.
Read this article to understand:
- Why natural capital is increasingly recognised as economically material
- How it can function as infrastructure by providing services such as managing flood risk
- The importance of assessing which revenue streams are sufficiently mature to underwrite
The term “natural capital” refers to the stock of natural assets that generate value over time. These include forests, soils, rivers, oceans, wetlands, grasslands and the biodiversity that supports healthy ecosystems. It matters because it generates what are known as ecosystem services.
These services encompass the wide range of benefits people derive from healthy natural systems. Some are familiar and directly traded through markets; timber production, agricultural commodities and fisheries all fall into this category. Others are less visible but no less important. Forests regulate water flows. Wetlands improve water quality. Coastal ecosystems help reduce flood risk. Pollinators support agricultural productivity. And natural habitats contribute to climate regulation through carbon sequestration and storage.
Much like physical infrastructure or financial assets, these natural systems are not simply valuable; they are a core productive input into the economy.
Historically, we have constructed roads, factories, power stations and digital infrastructure to support economic growth. However, we have often failed to invest adequately in maintaining the natural capital upon which those systems ultimately depend – ecosystem services were treated as effectively free. The result has been the gradual degradation of many natural assets around the world, often without acknowledging the associated economic costs.
Increasingly, this is changing. Governments, regulators and corporations are beginning to recognise that ecosystem services provide real economic value and that their continued provision requires investment. In the UK’s natural capital accounts, the Office for National Statistics evaluates the value of ecosystem services at approximately £1.8 trillion.1 At a global level, the World Economic Forum estimates that more than half of economic output depends on nature and the services it provides.2
This shift is driving the development of new environmental markets and creating opportunities for private capital to play a greater role in financing nature restoration.
Nature as capital
At the asset level, natural capital investments share many characteristics with traditional real assets like infrastructure and real estate. They are typically long-dated, physically grounded and capable of generating multiple sources of cashflow over time. Many also benefit from long-term structural demand drivers including population growth, and the growing need for resource security and climate adaptation.
If natural capital is the stock, ecosystem services are the flow
A useful analogy is to think about a rental property. The property itself represents the capital stock, while the rental income represents the flow of benefits generated by that asset. Natural capital works in much the same way. If natural capital is the stock, ecosystem services are the flow.
A commercial forest, for example, is fundamentally a real asset. The trees continue to grow regardless of market volatility, and the underlying land retains intrinsic value. The timber it produces, the carbon it stores, the water it regulates and the habitat it provides are the benefits that flow from that asset over time.
Similarly, productive agricultural land, water rights and ecosystem restoration projects all represent tangible assets linked to essential economic functions.
This distinction is important because it shifts the focus from viewing nature simply as scenery towards understanding it as an economic asset capable of generating long-term value.
Natural capital is a real-asset class, but not all revenue streams are equally mature
However, while the characteristics of natural capital assets may be familiar, the markets supporting their revenue streams are at different stages of development. Timber and agricultural commodities benefit from centuries of market activity and carbon markets have developed rapidly over recent decades. Biodiversity, water quality, natural flood management and other emerging ecosystem service markets are at earlier stages.
Understanding those differences requires moving beyond the environmental value of natural capital and examining the investment-readiness of the markets through which that value is monetised.
Why natural capital matters now
While the concept of natural capital has existed for decades, several trends are making it increasingly relevant today.
Nature is increasingly being recognised as a complementary form of infrastructure
First, there is growing recognition that nature loss creates material economic risks. Traditionally, infrastructure has been associated with engineered assets such as roads and power networks. Increasingly, however, nature is being recognised as a complementary form of infrastructure. Forests regulate water flows, wetlands reduce flood peaks, peatlands improve water quality and store carbon, whilst coastal ecosystems reduce storm surge impacts.
Therefore, deteriorating soil health, water scarcity, a decline in biodiversity and increased climate-related impacts can all affect economic productivity and asset values. And in many cases, these natural systems perform functions that would otherwise require expensive engineered alternatives.
Flood barriers, reservoirs, drainage systems, sea walls and cooling systems all perform essential functions. Yet many natural systems provide similar services, often at lower cost and with a wider range of co-benefits. As climate risks intensify, investment in natural infrastructure is likely to become increasingly important alongside engineered assets. In practice, the most resilient systems are often likely to combine both natural and engineered infrastructure.
Second, governments and regulators are increasingly introducing policies aimed at protecting and restoring natural systems. Biodiversity Net Gain requirements in England, carbon pricing frameworks and emerging nature disclosure regulations all reflect a broader trend towards recognising the economic importance of nature.
Third, technological advances are making natural systems easier to measure, monitor and verify. Developments in satellite monitoring, remote sensing and digital measurement tools are helping transform environmental outcomes that were once difficult to quantify into investable propositions.
Perhaps most importantly, society is beginning to recognise that environmental outcomes have economic value that can increasingly be measured, monetised and traded. This is leading to the emergence of a growing set of nature-linked revenue streams, ranging from well-established markets such as timber and agricultural production to newer markets associated with carbon sequestration, biodiversity enhancement and water quality improvements.
Natural capital is not the same as nature-based solutions
One area that often causes confusion is the distinction between natural capital, nature-based solutions and ecosystem services. Although these terms are frequently used interchangeably, they refer to different parts of the same system.
Natural capital refers to the underlying assets themselves. These are the forests, wetlands, soils, rivers and ecosystems that exist in the landscape. Nature-based solutions are the projects and interventions designed to protect, restore or enhance those assets. Examples include afforestation, peatland restoration, regenerative agriculture, mangrove restoration and wetland creation. Ecosystem services are the benefits generated as a result.
For example, a degraded peatland is a natural capital asset. A peatland restoration programme is a nature-based solution. The resulting carbon sequestration, improved water quality and biodiversity enhancement are ecosystem services.
Similarly, a commercial forest estate is a natural capital asset. Sustainable forest management and reforestation activities are nature-based solutions. The resulting timber production, carbon storage and biodiversity outcomes are ecosystem services.
This distinction is particularly important for investors.
Investors rarely invest in ecosystem services directly. Rather, they invest in assets and projects that generate those services. Understanding how value flows between the asset, the intervention and the resulting environmental outcomes is central to understanding how natural capital investment works.
Nature-based solutions: Addressing both climate mitigation and adaptation
Mitigation addresses the cause of climate change by reducing or removing greenhouse-gas emissions from the atmosphere. Adaptation addresses the consequences by increasing the resilience of communities, economies and infrastructure to a changing climate.
Much of the discussion surrounding natural capital over the last decade has focused on the former. Forests, peatlands, soils and coastal ecosystems all act as natural carbon sinks, removing greenhouse gases from the atmosphere and storing carbon over long periods. As governments and businesses seek pathways towards net zero, this carbon sequestration potential has become an increasingly important driver of investment in natural capital.
However, climate mitigation is only part of the story. Even under the most ambitious decarbonisation scenarios, climate impacts are expected to intensify over coming decades. Rising temperatures, more frequent heatwaves, water scarcity, flooding, wildfires and coastal erosion are no longer future risks; they are increasingly visible across many regions today. The climate challenge is therefore not simply about preventing future warming. It is also about adapting to the changes already underway.
Natural capital is one of the few areas where mitigation and adaptation can be pursued simultaneously
This matters because mitigation and adaptation are often discussed as competing priorities when, in reality, both are required. Focusing exclusively on adaptation would leave atmospheric greenhouse-gas concentrations to continue rising. Conversely, focusing exclusively on mitigation would do little to protect societies from the climate impacts that have already been locked into the system. A successful climate strategy therefore requires both, and natural capital is one of the few areas where they can be pursued simultaneously.
Many nature-based solutions not only remove or store carbon but also improve resilience to physical climate risks. Restoring natural systems can reduce flooding, enhance water security, improve soil health, protect infrastructure and increase the resilience of landscapes to drought and extreme weather (see Figure 1).
Figure 1: Nature-based solutions deliver ecosystem services in addition to decarbonisation
| Climate risk | Nature-based solution | Ecosystem service |
|---|---|---|
| River flooding | Wetland restoration and floodplain reconnection | Water storage and flood attenuation |
| Drought and water scarcity | Catchment restoration and soil improvement | Water retention and improved water availability |
| Urban heat stress | Urban forests and green infrastructure | Cooling and temperature regulation |
| Coastal flooding | Saltmarsh, mangrove and coastal habitat restoration | Wave attenuation and storm protection |
| Water quality deterioration | Peatland and catchment restoration | Natural water filtration and purification |
| Agricultural productivity loss | Regenerative agriculture and soil restoration | Improved soil health and resilience |
Source: Aviva Investors, July 2026.
Nature as infrastructure
This shift in thinking is reflected in growing interest in the concept of “nature as infrastructure”. Under this approach, financing ecosystem restoration is viewed not solely as a conservation activity, but as an investment in economic assets capable of delivering measurable services to society. The UK’s Infrastructure Bank (now the National Wealth Fund) has explicitly described natural capital as a form of infrastructure capable of supporting climate objectives, economic growth and wider societal benefits.3 Meanwhile, interest from policymakers and investors is increasingly focused on understanding how nature can complement traditional infrastructure systems.
The UK’s Climate Change Committee has similarly highlighted the importance of healthy ecosystems in supporting national climate resilience. In its 2026 assessment of climate risks and adaptation, the Committee identified forests, peatlands, wetlands and healthy soils as critical assets for safeguarding water resources, reducing flood risk, supporting biodiversity and improving the resilience of communities and infrastructure to climate change. Its analysis concluded that adaptation would require substantial investment in nature restoration and resilient land management, alongside traditional infrastructure solutions.4
Investment implications
The investment implications are significant. Unlike climate solutions that contribute primarily to either mitigation or adaptation, natural capital assets can often deliver multiple outcomes simultaneously. This ability to stack benefits is one of the defining characteristics of natural capital as an investment theme. A single underlying asset can generate economic value through multiple ecosystem services while simultaneously supporting broader societal objectives around climate, biodiversity and resilience. More fundamentally, it suggests that natural capital should not be viewed solely as a climate mitigation strategy.
Natural infrastructure can create value in more than one way
For investors, the key implication is that natural infrastructure can create value in more than one way. Some benefits may be directly monetised through established markets such as timber or carbon. Others may emerge through avoided costs, increased resilience, contractual payments or future policy mechanisms. This makes natural capital compelling, but it also means investors need a clear framework for distinguishing between benefits that are already financeable and those that remain earlier-stage.
Understanding these differences is critical. While the environmental value of these outcomes may be significant, their investment characteristics vary considerably. The next question is therefore not whether natural capital matters, but how investors can assess which nature-based revenue streams are sufficiently mature to support institutional capital today.
Look out for Natural capital comes of age: Part two
Why not all natural capital revenue streams are created equal
