At the core of our economy and the preservation of life on Earth lies an often-underappreciated asset, natural capital. Natural capital consists of Earth’s renewable and non-renewable resources; trees, soil, air, water, and all living organisms that provide essential ecosystem services such as CO2 capture, protection against soil erosion and flood risk, wildlife habitats, and pollination.[1]
While it’s estimated that over $40 trillion, or more than half of the global GDP, is intricately dependent on natural capital, its importance goes beyond economics.[2] Various aspects of natural capital, like forestry and regenerative agriculture, can absorb carbon from the atmosphere and enhance biodiversity, making them indispensable in the battle against climate change. Encouragingly, a new wave of innovative start-ups is emerging, offering solutions to transform natural capital into a thriving asset class and fuel the transition to regenerative agriculture for a more sustainable future.
Agroforestry
Over the past two decades, unsustainable land management practices have culminated in the loss of over a quarter of the planet’s arable land.[3] Agroforestry, the practice of integrating trees, shrubs, crops, or livestock on the same piece of land, has proven critical for biodiversity enhancement and conservation. However, there is also great hope that agroforestry systems can help tackle the rising climate change crisis by removing up to 0.31 billion metric tons of carbon annually.[4]
Agroforestry allows investors to generate revenue by selling carbon sequestered from carbon projects. Innovative start-ups are seizing the opportunity, leveraging advanced technology to track and enhance the performance of agroforestry projects. Among these innovators, Pachama stands out with its cutting-edge carbon credit platform designed to validate and monitor carbon capture within agroforestry projects. Leveraging advanced machine learning, Pachama combines satellite imagery, on-the-ground plot data, and 3D airborne lidar scans to chart forest carbon across vast regions. This provides a scalable, verifiable, cost-effective approach to carbon sequestering, enabling companies to buy credits to meet their net-zero targets with greater confidence and trust. The company raised a $55 million funding round in 2022 and has around 800 customers, including Salesforce, Microsoft, Airbnb, and Netflix.[5]
Reforest’Action aims to restore and regenerate 1 million hectares of (agro)forestry ecosystems by 2030. The company provides customised solutions to corporates to help them achieve their carbon strategies. It focuses on large scale projects regenerating terrestrial ecosystems and creating carbon sinks to help meet decarbonisation goals. The company has a portfolio of 1000+ projects across the globe.
Regenerative agriculture
Modern agriculture, relying on machinery, fertilisers, and pesticides, has boosted food production but led to soil degradation and potential food security risks. According to Regeneration International, if current practices persist, a soil shortage looms within 50 years, alongside CO2 emissions exacerbating climate change. Regenerative agriculture offers a solution, aiming to restore ecosystem health by rebuilding soil organic matter and biodiversity. This approach could increase crop yields by 13% by 2040, especially beneficial in regions like Africa.[6]
Some players in the space are focused on using species that have high regenerative properties to develop degraded soils and sell their associated by-products. Phyla Earth has built a portfolio of IP related to Pongamia tree varieties, known for high efficiency and minimal water usage, to restore degraded lands. Phyla’s Elite Pongamia varieties are effective tree species for soil, climate, and farmer-friendly agroforestry, producing eco-friendly fuels and alternative proteins. The company plans to expand its portfolio of IPs that support the regeneration of degraded lands. It has already developed regenerative projects in Africa and plans to expand its projects across the global south.
Agreena developed a platform that empowers farmers to plan, monitor, and validate their adoption of specific regenerative practices. Its cutting-edge measurement, reporting, and verification (MRV) technology uses remote sensing via satellites and AI that, when combined with soil sampling and ground-truth field data, allows the company to build out soil carbon intelligence at scale. The MRV technology enables Agreena to generate high-integrity soil carbon credits, that farmers can keep and sell or have Agreena sell them on their behalf. Agreena raised $50 million in Series B funding in March 2023.[7]
Directing capital to the right opportunities
Natural capital investments are gaining momentum, with a number of newly launched funds and strategies in recent years from asset managers including Blackrock, Nuveen and Cibus.[8] According to a recent report by bfinance identified more than 50 asset managers offering natural capital strategies. Despite the growing appetite for the asset class, a significant shortfall persists between current investment levels and the amount needed to preserve our natural ecosystems. According to UNEP and The Nature Conservancy estimates, the annual investment required to protect our natural environment far exceeds the current spending of $154 billion annually, of which only a fraction (17%) comes from the private sector.[9]
Start-ups are also emerging and making significant strides to connect investors and opportunities in the natural capital space. Propagate offers a tech-driven platform that empowers landowners to integrate agroforestry into their lands, enabling investors to identify and engage with low-risk agroforestry ventures. With over 2,400 acres under management and support for planting more than 200,000 trees and shrubs, Propagate is a prime example of how innovative start-ups can facilitate sustainable land use and investment.
Cultivo is working on unlocking investments in the natural capital space by co-designing and monitoring portfolios of high-quality natural capital projects. It offers investors the ability to search and choose the projects they want to invest in and considers the potential financial returns as part of its portfolio design allowing investors to achieve triple returns; financial, natural, and social. It has recently raised $14m in a series-A funding led by MassMutual Ventures and Octopus Energy Generation.
Another player in this space is The Landbanking Group. The company has developed the world’s first Nature Equity Management platform that provides a framework to measure, register, issue, hold, and trade Nature Equity. This innovative asset class will assist in shifting land-use incentives towards more environmentally beneficial practices.
Closing the natural capital gap
Nature’s invaluable contributions often go unnoticed despite their profound impact. From pollinators enhancing agricultural yields to oceans driving trillions in global economic value, the significance of these ecosystems cannot be overstated. Yet, the investment allocated to preserving them remains inadequate. The anticipated funding needed for biodiversity conservation alone will reach between $722 and $967 billion annually by 2030, far higher than the comparatively modest $124-143 billion in biodiversity finance committed. Such a substantial gap between the required and pledged financing translates to a significant shortfall in nature funding, amounting to approximately $600 billion per year.[10]
As climate change intensifies and scrutiny grows around carbon markets and their efficacy, innovative start-ups are emerging as pivotal players in addressing this disparity. These ventures help streamline investment processes, connect stakeholders, and ensure accountability and measurable outcomes. Through their efforts, they can bridge the natural capital investment gap, paving the way for a future where both environmental sustainability and economic prosperity thrive in harmony.
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