Benefits and risks of natural capital and environmental markets

Investing in natural capital can lead to increased profitability and the preservation of the land's value for future generations. Like all investing, there are benefits and risks for the investor. It is crucial for landholders to understand the benefits and risks of environmental markets and natural capital investing to achieve sustainable outcomes.

Benefits of environmental markets for landholders

With investors, banks, insurers, consumers and companies factoring environmental outcomes into their decisions more often, natural capital and environmental markets can offer landholders a range of potential benefits.

Supporting land stewardship

Natural capital and environmental markets acknowledge and reward landholders for their important role in caring for the land, supporting landholders to produce primary products while protecting the environment.

Improved productivity

Investing in natural capital can increase the productivity of your land. You could see higher yields or lower costs thanks to co-benefits like improved soil quality and water retention, increased pollinators, stock protection from windbreaks or more efficient fertiliser application rates.

New revenue and market opportunities

You may be able to sell goods as a premium product, access new markets and increase sales, or even identify new markets and create solutions to meet those needs.

Diversification and resilience

You can improve the resilience of your land and farm business by diversifying operations and income.

Reducing or avoiding future costs

You can minimise or prevent current and future on-farm costs linked to climate risk, or potential taxes, charges or levies associated with environmental harm and pollution.

Access to finance

You may get access to new and cost-effective green loans and gain investor interest and confidence.

Increased social licence

Protecting, restoring and improving the environment is increasingly demanded by consumers and society. Showing that your land management activities match these values can greatly benefit your reputation.

Broader environmental and societal benefits

Sustainable land management leads to improved biodiversity, mitigation of soil erosion, healthier soils,
reduced pollutant run-off and more. Beyond the farm gate, these benefits boost the health, wellbeing and resilience of local environments and communities.

Risks of environmental markets

Like all investments, natural capital and environmental markets come with possible risks. It is important to understand what those risks are so you can factor them into your decision making. If you are unsure, seek expert advice.

Political and regulatory

Future policies and regulations, both at the federal and state level, may change specific environmental market requirements, subsidies or taxes.

Market and Business

New and emerging markets may be unstable, and prices or buyer demand could change in the future. If you decide to sell your credits, you may miss the opportunity to demonstrate carbon neutrality, potentially preventing access to premium markets.

Legal

Potential legal matters could include contracts, ownership agreements, planning approvals or penalties, if you don’t meet your market or contractual obligations.

Financial

Unbudgeted costs, underfunding, not being fully paid for your activities, project delays, inconsistent or insecure resources, underperformance, or other issues could lead to financial loss.

Performance and compliance

If you don’t meet your performance requirements or timeframes, you could face financial penalties or other consequences.

Management and technical

You may have to depend on external technical support, or face issues with a lack of technical equipment, insufficient business, legal and administrative functions, and dishonest brokers and intermediaries.

Local Land Services can help you understand the natural capital and environmental market opportunities available, and the potential benefits and risks, so you can make the best decisions for your property.

Our natural capital service finder will help you find new opportunities and environmental market programs from trusted service providers.

Resources

Download our PDF factsheets:

The information provided on this webpage is based on knowledge and understanding at the time of writing (August 2023) and may not be accurate, current or complete. The State of New South Wales (including the Department of Regional NSW and Local Land Services), and the author take no responsibility, and will accept no liability, for the accuracy, currency, reliability, or correctness of any information included here (including material provided by third parties). Readers should make their own inquiries and rely on their own advice when making decisions related to material contained in this publication.