Investing in Natural Capital for a Greener and Fairer Recovery

COVID-19 has forced the global economic system to a near-standstill. We have a once-in-a-generation opportunity to reorient our economy towards a greener, fairer future by investing in natural capital. But so far, governments have dedicated less than 3% of COVID recovery spending to natural capital investments.

About the Authors

Dr. Joy A. Kim

Joy is a Program Officer in the Economic Research Unit at UNEP. Joy has been working in the area of macro-economic and environmental policies for over 20 years. Since she joined UNEP, she has been working on green economy policy. She is currently leading a 'fiscal policy for green economy' work at the Economy Division of UNEP. Before joining UNEP, she worked as an economist/senior policy analyst at the Organisation for Economic Cooperation and Development (OECD) in Paris, supporting global negotiations on climate change and trade. She also worked at the United Nations University in Tokyo and the Tyndall Centre for Climate Change Research in the UK. She was also a leadership fellow at Harvard Kennedy School of Government. She holds a doctoral degree from the University of East Anglia in the UK.

Ryan Maia

Ryan is currently an intern working on green fiscal policy at UNEP. He is also pursuing a Master in International Affairs at the Graduate Institute in Geneva. He has previously worked at Climate XChange in Boston, Massachusetts and the Institute for Economics and Peace in Sydney, Australia. Ryan is a Board Member of VSN-FDD-FSS, the Swiss Association of Student Organizations for Sustainability. He holds a BA in International Affairs and BS in Philosophy from Northeastern University, where he graduated as a Presidential Global Fellow.

Natural capital is our planet’s stock of natural resources that collectively yield benefits to people.[1] Investing in natural capital implies massive economic, social, and environmental benefits, supporting countries’ COVID recovery and prevention of future pandemics. Habitat restoration, coastal protection, and invasive species removal are all examples of investment in natural capital.

Ultimately all wealth depends on the preservation of natural capital. Yet, our planet’s per capita stock of natural capital has fallen in value by 40% over the past 25 year.[2] We lose 10 million hectares of forest annually –an area twice the size of Costa Rica.[3]

Unless we prioritize investing in natural capital as major green investment opportunity for a sustainable pandemic recovery, COVID crisis is likely to exacerbate natural capital losses as countries exploit nature to finance pandemic-induced debts.[4, 5] While some governments are fostering natural capital as part of their COVID recovery spending, there is a clear need for more.

Louise Mabulo, 2019 Young Champion of the Earth for Asia and the Pacific

Why invest in natural capital?

Investing in natural capital presents unique, untapped opportunities for countries to reap economic, social, and environmental benefits simultaneously.

Economic Benefits

Natural capital investment has a high economic multiplier – since a significant proportion of spending goes towards jobs and domestic natural resources, it provides a big boost to the domestic economy.[6] For instance, investing in natural capital can quickly create jobs, jumpstarting COVID economic recovery from the bottom-up. For example, a $1M annual outlay in forest management can generate 500-1,000 jobs in many developing countries.[7] In addition, nature-based solutions create up to 10 times more jobs than investments in the oil and gas industry.[8]* On top of all this, jobs created by investing in natural capital jobs easily satisfy social distancing norms.[9]

These investments also safeguard nature-dependent industries, such as tourism, water, and agriculture. Degradation of soil quality, waterways, and biodiversity act as significant handbrakes against growth in these sectors.[10] Hence, achievement of SDG 8 – sustained, inclusive, and sustainable economic growth and decent work for all – depends on the protection of natural capital.[11] The pandemic has particularly devastated the tourism industry,[12] and supporting tourism via natural capital investment can have significant economic benefits for countries that rely on tourism (e.g. the Philippines, Thailand, Vietnam, and Mexico) and greener recovery in the medium and long-term.[13]

Environmental Benefits

Natural capital investments can also reduce climate risks and stymie biodiversity loss. Nature-based solutions provide fiscally savvy climate mitigation, costing as little as $10 per 103 tons of CO2eq.[14] For example, reforestation sequesters carbon, helping countries achieve their Paris Agreement emissions targets and contributing to the fight against climate change.[15]

Investing in natural capital can also increase community resilience to natural disasters including fire, floods, and storms. In particular, countries susceptible to floods (e.g., India, Bangladesh, China, Vietnam, Pakistan, and Indonesia) and wildfires (e.g., US, Australia, and Brazil) should leverage COVID spending to both invest in natural capital and bolster resilience.[16] Investment in ecosystem conservation can generate resilience-building benefits worth four times the original investment.[17]

Loss of biodiversity and ecosystem integrity, together with climate change and pollution, will undermine efforts on 80 per cent of assessed SDG Targets.[18] In October 2021, the fifteenth Conference of the Parties (COP 15) to the Convention on Biological Diversity (CBD) will meet in Kunming, China to review the 2011-2020 Biodiversity Plan and decide on a post-2020 global diversity framework. Natural capital investment can play a critical role in helping countries honor the biodiversity targets and commitments they establish in Kunming.

Given the interconnected nature of climate change, loss of biodiversity, land degradation, and air and water pollution, we need solutions that mitigate vulnerability, minimize trade-offs, and maximize synergies.[19] Natural capital investments are naturally suited to provide such solutions.

Health Benefits

Natural capital investments also improve well-being and reduce health risks. By enhancing local cooling effects, improving air quality, ensuring access to clean water, bolstering food security, reducing exposure to toxic pollution, and increasing access to green spaces, natural capital projects can improve physical and mental health and reduce mortality related to environmental toxicity.[20]

Investing in natural capital is also a step towards preventing future pandemics. Around one quarter of the global burden of disease stems from environment-related risks, including those from animal-borne diseases (such as COVID-19).[21] 1 out of 3 outbreaks of new and emerging diseases are linked to deforestation and other land use changes.[22] Protecting natural capital can prevent diseases outbreaks and the massive health and economic fallout they create.

Despite evidence of outsized benefits, investment in nature so far represents a missed opportunity.

According to the Green Recovery Observatory which assesses the “greenness” of pandemic recovery spending in 89 countries, less than 3% of recovery spending will invest in natural capital.[23]

On the flip side, almost 13% of recovery spending was assessed as negatively impacting natural capital. Expanded road transport and defense services are two primary recovery spending outlets that negatively impact natural capital.

In total, USD 17.28 trillion has been spent on COVID rescue and recovery efforts. As of May 2021, a comparatively paltry USD 60.79 billion in pandemic spending has promoted natural capital. 

As depicted below, current global leaders in natural capital spending include China, Spain, the United States, South Korea, and Canada.

Many developing countries are faced with a difficult choice: save lives, jobs, and natural capital, or service crushing debt loads.

Over half of least developed and low-income countries are at high risk of debt distress or in debt distress, and more than a third of emerging market economies are at high risk of fiscal crises.[24] A minimum of US$598 billion of external public debt service payments are at risk across 72 countries from 2021-2025, with US$311 billion owed to private creditors.[25]

Without substantial and sustainable debt relief, developing countries will face pressure to finance short-term debt by exploiting their natural capital, undercutting conservation and climate change ambitions.[26] Nature’s health and climate change impacts pose immediate and long-term risks to economic growth, particularly in developing economies where “natural capital” makes up 47% of total wealth on average.[27] The pandemic and climate crisis will only exacerbate these vulnerabilities by increasing both debt levels and costs unless the current fiscal constrains in developing countries are addressed.[28]

To ensure financially and ecologically sustainable futures, indebted developing economies need access to stable, low-cost finance.[29] The disparity in financing capacity between advanced and developing economies is huge – UNEP’s work with Oxford University partners shows that, on a per capita basis in 2020, total COVID-19 spending in advanced economies has been 17 times greater than in EMDEs.[30]  Advanced economies can and should support developing country efforts to make natural capital a cornerstone of their pandemic recovery.

Debt-for-climate-and-nature swaps provide bilateral and multilateral debt relief, creating fiscal breathing room for them to invest in natural capital and other climate adaptation and mitigation pathways.

Green financial sector fiscal reform in advanced economies could amass funding for natural capital projects.[31]  Developed countries could remove tax incentives for “dirty” financial products, increase the bank levy on carbon-intensive assets, or impose a financial transaction tax on carbon-intensive assets. In addition to mitigating climate change, these reforms would also accrue revenue that developed countries could distribute to developing countries – on the condition that it is used to finance natural capital investments.

Debt-for-climate-and-nature swaps are also potential means for advanced economies to support least-developed and developing countries with their rising debt burdens and climate and biodiversity objectives.[32] These debt swaps provide bilateral and multilateral debt relief, creating fiscal breathing room for them to invest in natural capital and other climate adaptation and mitigation pathways.[33] The leaders of Pakistan, Jamaica, Namibia and Mauritania have referenced debt-for-climate-and-nature swaps as a way to align economic recovery support with climate and nature objectives. The head of the IMF has pledged to present an option for green debt swaps by November.[34]

Moving Forward

Countries and communities have demonstrated their potential to undertake widespread systemic change in the face of the COVID-19 pandemic. As the world economy resets its gears, we have an opportunity to revise our economic, financial, and policymaking systems such that they value and support natural capital.

The Global Recovery Observatory can help us identify countries and policies that model effective natural capital investment. According to recent Global Recovery Observatory data, the following countries have championed natural capital-positive projects through pandemic recovery spending:

Unfortunately, these examples are still a minority of global total and recovery COVID-19 spending. In the runup to this year’s UN Convention on Biological Diversity (COP-15) meeting in Kunming, China and the UN Framework Convention on Climate Change (UNFCCC) COP26 meeting in Glasgow, Scotland, it is vital that governments recognize and act on natural capital investment opportunities.

Thinking systemically, COVID is an opportunity to ensure that economic, financial, and policymaking systems value natural capital’s contributions to human well-being. Natural capital accounting measures changes in natural capital stocks and valorizes ecosystem services, which can help reorient global and national economies towards sustainable growth path.[40] In March 2021, the United Nations Statistical Commission adopted SEEA Ecosystem Accounting (SEEA EA), a tool that allows decisionmakers to value natural capital in economic policy planning and cost-benefit analysis. Full natural capital accounting by governments and businesses, coupled with transitional economic incentives, would shift finance from environmentally harmful activities towards sustainable investments.[41]

The COVID-19 pandemic is a reminder that planetary health and human health are interconnected. Fiscal policy choices today will have long-lasting economic and ecological ramifications. Investing pandemic recovery funding in natural capital would address today’s key economic, ecological, and financial questions while also helping countries get on track for long-term sustainability.


[1] UNEP. 2021. Making Peace with Nature: A scientific blueprint to tackle the climate, biodiversity and pollution emergencies. Nairobi.

[2] IRP. 2021. Building Biodiversity: The Natural Resource Management Approach. Janez Potočnik and Izabella Teixeira. A think piece of the International Resource Panel Co-Chair.

[3] FAO and UNEP. 2020. The State of the World’s Forests 2020. Forests, biodiversity and people. Rome.

[4] UNEP and University of Oxford. 2021. Are We Building Back Better.

[5] UN Environment Management Group. 27 April 2021. Outcome Document. Addressing COVID-19 for the Environment: A 3-Part Virtual Nexus Dialogue Series. Defining Green Recovery.

[6] UNEP and University of Oxford. 2021. Are We Building Back Better.

[7] UNEP. 2021. Deforestation Factsheet.

[8]* Edwards, Peter et al. 2013. Investing in nature: Restoring coastal habitat blue infrastructure and green job creation.

This reference and the corresponding natural capital investment jobs creation figure were updated on 20 September 2021.

[9] Dasgupta, Partha. 2021. The Economics of Biodiversity: The Dasgupta Review. (London: HM Treasury)

[10] UNEP and University of Oxford. 2021. Are We Building Back Better.

[13] UNEP and University of Oxford. 2021. Are We Building Back Better.

[14] WBCSD. 2021. “Natural Climate Solutions.” Accessed 29 May 2021.

[15] UNEP and University of Oxford. 2021. Are We Building Back Better.

[16] UNEP and University of Oxford. 2021. Are We Building Back Better.

[20] UNEP and University of Oxford. 2021. Are We Building Back Better.

[22] UNEP. 2021. Deforestation Factsheet.

[23] UNEP and University of Oxford. 2021. Are We Building Back Better.

[25] UNDP. 2021. Sovereign Debt Vulnerabilities in Developing Economies. Jensen, Lars. Development Futures Series Working Paper.

[26] UN Environment Management Group. 27 April 2021. Outcome Document. Addressing COVID-19 for the Environment: A 3-Part Virtual Nexus Dialogue Series. Defining Green Recovery.

[27] Gorst, Ashley. 2021. Time For Solutions To Tackle The Twin Sovereign Debt And Nature Crises. Green Fiscal Policy Network.

[28] Institute for New Economic Thinking. 2021. “Climate change imperils countries’ ability to repay COVID debts.” Oxford University.

[30] UNEP and Oxford University. 2021. Green Recovery Observatory.

[31] Schoenauer, Anne. 2021. How Can We Build Back Green And Just? Financial Sector Taxes As One Idea. Green Fiscal Policy Network.

[32] Paul Steele and Sejal Patel. 2021. How debt for climate and nature swaps can support a green recovery. Green Economy Coalition.

[33] Steele, Paul and Patel, Sejal. 2021. Tackling the triple crisis. Using debt swaps to address debt, climate and nature loss post-COVID-19. IIED. Shaping Sustainable Markets Papers.

[35] Government of Pakistan. 2019. TEN BILLION TREES TSUNAMI PROGRAMME – PHASE-I UP-SCALING OF GREEN PAKISTAN PROGRAMME. Ministry of Climate Change. Accessed 29 May 2020.

[36] HM Treasury. 2020. Spending Review 2020 documents. Accessed 29 May 2020.

[37] Gobierno de Peru. 2020. “Midagri invierte más de 1 millón y medio en mantenimiento de canales de riego en Chincha.” Autoridad Nacional del Agua, Ministerio de Desarrollo Agrario y Riego,

[38] Government of Trinidad and Tobago. 2020. Budget Statement 2021: Resetting the Economy for Growth and Innovation. Ministry of Finance.