By Bay St. Clair, Associate, Entoro Capital, LLC
More than half of global economic output depends on something that rarely appears on a balance sheet: the world’s stock of land, forests, water, soil, minerals, and biodiversity. Economists call this stock natural capital, and the services it generates for free, clean water, pollination, flood control, carbon storage, timber, fertile soil. One widely cited estimate valued these ecosystem services at roughly $125 trillion annually, based on 2011 conditions, a figure larger than the output of the world’s two biggest economies combined. Yet only a fraction of it shows up in any market price, which means most of the world’s most valuable asset has never been priced, financed, or traded the way stocks, bonds, or real estate are.
That gap is starting to close. This is the first piece in an ongoing series on natural capital and the energy transition, and it lays out the basic case: what natural capital actually is, what it consists of, why the market has ignored it for so long, and where things go from here.
The stock and the flow
It helps to separate the asset from the income it produces. The stock is physical: forests, aquifers, topsoil, mineral deposits, coral reefs, wetlands, and the full range of ecosystems that make up the planet’s biological infrastructure. The flow is what that stock produces every year without anyone having to build a factory or write a check, clean air, drinkable water, pollinated crops, flood buffers, and a stable climate among them.
Conventional economic accounting treats almost all of this as free. A forest’s value shows up in gross domestic product (GDP) only when it’s logged and sold as timber; the same forest’s value as a flood barrier, a carbon sink, and a water filtration system generally shows up nowhere at all. That accounting gap is why natural capital has historically been treated as an externality rather than an asset, something companies and investors could use without paying for and without measuring.
What natural capital actually consists of
Natural capital is not one thing, it is a handful of distinct systems that get lumped together because they all sit outside conventional accounting. Each behaves differently, faces different pressures, and is being priced and financed in different ways.
Forests and land are the most visible category: they store carbon, regulate regional rainfall, hold soil in place, and supply timber, while the land underneath supports everything from agriculture to construction. Water is a separate system entirely, the rivers, aquifers, and watersheds that supply drinking water, irrigation, and industrial processes, increasingly allocated through water rights and pricing mechanisms as scarcity grows in more regions. Soil and agricultural land form the physical foundation of the global food system; its slow degradation through erosion, intensive farming, and nutrient depletion is a quieter risk than deforestation but arguably a more consequential one, since fertile soil takes centuries to form and only years to exhaust. Minerals are the category most tied to the built economy, the metals and industrial minerals that go into everything from steel and cement to the components inside clean-energy technology, extracted at a pace that raises its own supply and environmental tradeoffs. And biodiversity, the variety of species and ecosystems that helps keep all of the above resilient, is increasingly moving into formal financial measurement through frameworks such as the Taskforce on Nature-related Financial Disclosures (TNFD). Emerging biodiversity-credit markets are also attempting to create investable units tied to measurable conservation or restoration outcomes, although those markets remain far less mature than carbon markets.
These categories overlap in practice. A healthy forest is also a biodiversity reservoir and a water regulator; degraded soil undermines both agricultural output and a region’s resilience to drought. That interdependence is part of why treating natural capital as a single, free input has been so costly to get wrong.
The bill for ignoring it
Externalities eventually send a bill. The economic exposure is substantial. The World Bank estimates that the collapse of selected ecosystem services could reduce global GDP by approximately $2.7 trillion annually by 2030. More than half of global economic output is moderately or highly dependent on nature and its services, according to analysis by the World Economic Forum and PwC.
That exposure is not evenly distributed and not always obvious. A food company’s supply chain depends on stable rainfall and healthy soil. A coastal property portfolio depends on intact wetlands and reefs that blunt storm surge. A bank’s loan book depends, several steps removed, on all of it. None of that dependency typically shows up in a financial statement, which is exactly the mismatch that has allowed the depletion to continue largely unpriced and unmanaged.
Where this goes from here
Three forces are now converging to close that gap. Governments are writing policy frameworks that put a price on environmental outcomes, from carbon markets to water allocation regimes. Regulators and standard setters are developing disclosure regimes that increasingly require or encourage companies to assess and report their dependencies and impacts on natural systems. And investors, facing both risk exposure and a genuine return opportunity, are asking for vehicles that let them hold natural capital the way they’d hold any other asset.
The earliest results of that convergence are already visible: securitized carbon-reduction projects, water-rights portfolios, and sustainably managed timber and farmland are each early examples of a natural capital category being converted from a free input into something with a price and a cash flow. How that conversion actually gets built, the verification, the legal authorization, the market infrastructure behind it, is substantial enough to be its own piece later in this series.
The bottom line
Natural capital has always underpinned much of the economic activity that keeps the global economy running, across forests, water, soil, minerals, and biodiversity alike. What has been missing is the recognition, and the infrastructure, to measure it, price it, and manage the risk of losing it, rather than treating it as a free input. That shift, from externality to asset class, is the story this series will follow one category at a time.
Future pieces will go deeper on each of these categories individually, along with how carbon markets, water rights, and biodiversity credits are actually being built into investable structures today.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of Entoro, LLC, or any of their respective affiliates. This article is provided for general informational and educational purposes only and does not constitute investment advice, a recommendation, an offer to sell, or a solicitation of an offer to buy any security, financial product, or investment strategy. The information presented is believed to be reliable but is not guaranteed as to its accuracy, completeness, or timeliness. Any forward-looking statements or opinions are subject to change without notice.
Author Bio: Bay St. Clair is an Associate at Entoro Capital, LLC, focused on structured finance, carbon markets, insurance, and renewable energy transactions. He supports financial modeling, due diligence, automation, and valuation work for climate finance and environmental asset securitization projects.
He plays a central role in expanding Entoro’s Natural Capital Securities platform and 1NatCap’s transaction infrastructure. He supports the origination, structuring, and execution of carbon and natural capital securitization projects through the development of Entoro’s automated processes for diligence frameworks, risk-assessment processes, and capital-markets systems required to move projects from initial evaluation through financing and commercialization.
Bay has supported Entoro Insurance Services by preparing research and presentation materials for various carbon credit insurance partnership initiatives. He also worked as a student consultant with CarMax, where he developed a financial and marketing strategy to enhance electric vehicle adoption.
He earned a Bachelor of Science in Commerce with concentrations in Finance and Management from the University of Virginia’s McIntire School of Commerce. He holds FINRA Series 3, 7, 24, 27, and 63 licenses and is a licensed Property and Casualty Insurance Agent in Texas.
