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What is natural capital?

Natural capital is the world’s stocks of natural assets including soil, air, water and all living things, which combine  to create an ecosystem that makes life possible. Its most obvious benefits for humans are clean air, food, water, energy, shelter, sources of medicine, and many of the materials that we use. Less visible ecosystem services include natural flood defences provided by forests; climate regulation; the pollination of crops; and billions of tonnes of carbon stored by peatlands. And while we talk of many recognised ‘capitals’, including financial, manufactured, social, human, and intellectual, natural capital underpins all of these by providing the base on which societies can thrive and economies can prosper.

Natural capital has become an increasingly serious issue of concern because much like running up financial debts – which can result in bankruptcy, when we draw down too much stock from our natural environment, without ensuring and encouraging its recovery – we run the risk of local, regional and eventually, global ecosystem collapse.

In short, we have increased financial capital, in a large part through the exploitation and degradation of natural and social capital. Over-exploiting natural capital can prove to be catastrophic, not just in terms of biodiversity loss, but for humans economically and socially when ecosystem productivity and resilience decline. This is becoming increasingly evident over time, particularly in regions which are prone to extreme weather events such as floods and droughts. Communities struggle to sustain themselves in stressed ecosystems, and potentially face the risk of starvation, conflict over resource scarcity, and displacement of populations.

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Many studies have assessed natural capital’s value in financial terms. The United Nations tell us that business activity degrades nearly 30 million acres of land every year at a cost of USD 40 billion to the global economy. In fact, the issue of degraded land has become so urgent that at the COP21 climate negotiations in 2015, the Prince of Wales, along with many others, urged delegates to consider “landscape restoration” as much of a priority as halting its degradation. Using a science based approach, it is possible to rebuild hydrology and replant native trees or plants to restore natural capital, but businesses need to be convinced, and a clear case has to be established by measuring and accounting for the value that ecosystems provide.  

To address these challenges, in 2016, the Natural Capital Protocol was launched by the Natural Capital Coalition. Currently, there is no clear mechanism to help businesses incorporate natural resource considerations.

The resulting report Operationalising national capital: Managing opportunities and risks from natural resources, explores how businesses are looking for ways to incorporate natural resources into their decision making, and gives an overview of where that consideration is taking place, and what barriers may prevent its incorporation.

You can download and view the full Operationalising natural capital: Managing opportunities and risks from natural resources, report here.

One notable example of a global enterprise who have made it a priority to measure and monetise  the environmental impacts of their activities is Kering Group, who currently employ over 40,000 people and distribute luxury brands to more than 120 countries. Kering has developed the EP&L (Environmental Profit and Loss), an innovative tool which makes “the invisible impacts of business visible, quantifiable and comparable.” Kering  measures its environmental footprint in operations across its supply chain, and led by the insights of its EP&L, focus on regenerative and restorative sourcing practices, production processes, and supplier performance.

Thanks to these new models of collaboration – which focus on eliminating waste and promoting greater resource productivity, we are offered a far more optimistic forecast for a circular economy – where business both embraces and enhances natural capital. Indeed, renowned author and campaigner, L.Hunter Lovins, who is the President and Founder of Natural Capitalism Solutions(NCS) tells us…

If we use resources productively and take to heart the lessons learned from coping with the energy crisis, we face a future confronted only, as Pogo, once said, by insurmountable opportunities. The many crises facing us should be seen, then, not as threats, but as chances to remake the future so it serves all beings.”

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The Author

Lou Waldegrave

Lou Waldegrave

Lou Waldegrave is a copywriter who has written across all of the mediums and began her writing career in radio advertising. She joined the Ellen MacArthur Foundation in May 2015.

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