Coastal ecosystems around New Zealand are under increasing pressure as a result of the growing use of coastal areas and resources. Recognition of the environmental costs of coastal use and development has led resource managers, scientists and communities to increasingly consider the possibility of compensating for adverse impacts with environmental benefits of equivalent worth ('environmental compensation'). The Resource Management Act 1991 (RMA) establishes a new regime for coastal management in New Zealand. Central to this are the New Zealand Coastal Policy Statement and Regional Coastal Plans. This paper explores the provisions for environmental compensation as the sustainable management of natural and physical resources in the coastal environment is translated into policy and practice under the RMA. A review of the existing legislative and policy framework for the sustainable management of the coastal environment in New Zealand suggests that environmental compensation is implicit in the legislation through concepts such as 'avoiding, remedying, and mitigating any adverse effects of activities on the environment', and in the provisions for 'services or works' as part of the conditions attached to a resource consent. Nevertheless, in practice it appears that the potential for environmental compensation is not yet being fully realised. If sustainable management of the coastal environment is to be achieved, resource managers, decisionsmakers and developers need to be challenged to adopt a proactive and creative approach to the opportunities for environmental compensation provided in the RMA.