Natural capital refers to the Earth's supply of natural resources, such as rocks, soil, air, water, and all living things. Some of these resources provide people with free benefits, known as ecosystem services. These resources support our economy and society, making human life possible.

Natural capital expands the idea of economic capital (resources used to create more resources) to include services from the natural environment. For example, a healthy forest or river can provide a steady supply of trees or fish over time, but using these resources too much can lead to long-term shortages. Natural capital also offers important services, like collecting water, preventing soil erosion, and helping plants grow through insect pollination. These services help keep other natural resources available for the future.

The ability of natural capital to provide these services depends on a healthy environment. Therefore, the variety and structure of habitats and ecosystems are key parts of natural capital. Tools called "natural capital asset checks" help leaders understand how changes in natural resources might affect people and the economy. When businesses or individuals use natural resources without facing consequences, it can harm ecosystems and the environment. This situation is called "unpriced natural capital."

History of the concept

The term "natural capital" was first used in 1973 by E. F. Schumacher in his book Small Is Beautiful. Later, Herman Daly, Robert Costanza, and other founders of Ecological Economics expanded the idea as part of a detailed review of problems with traditional economic systems. Natural capital is a key idea in economic studies that value ecosystem services. This concept focuses on the fact that non-human life, such as plants and animals, provides goods and services essential for human survival. Natural capital is vital for keeping the economy sustainable over time.

In traditional economic analysis, natural capital is often grouped under the category "land," which is different from "capital." Historically, "land" was seen as naturally occurring and limited in supply, while "capital" referred only to human-made items, like tools or buildings. However, this view is incorrect because human actions can improve or harm natural capital over time (see Environmental degradation). Natural capital also provides useful goods, such as timber or food, which humans can harvest. These benefits are similar to those from man-made capital, like a factory that makes cars or a tree that produces fruit.

Ecologists and economists are working together to measure the value of ecosystems to address the loss of biodiversity. Some studies have tried to assign a dollar value to ecosystem services, such as the role of the Canadian boreal forest. If the boreal forest remains ecologically healthy, it is estimated to be worth $3.7 trillion. This forest helps regulate the atmosphere and stores more carbon than any other ecosystem on Earth. Its annual value from ecosystem services is about $93.2 billion, which is 2.5 times greater than the value of resources extracted from it each year.

In 1997, scientists estimated that 17 ecosystem services across the entire biosphere are worth about $33 trillion each year. These values are not included in standard economic measures like GDP or national income accounts because they mostly occur outside of global markets and lack assigned prices. The loss of natural capital continues to grow, but it is often not noticed or addressed by traditional economic analysis.

Globally, the idea of natural capital is not controversial, but there is uncertainty about how to best measure its value. Some proposals, like full-cost accounting or the triple bottom line, suggest including measures of "ecological deficit" or "natural deficit" alongside social and financial deficits. Measuring these deficits is difficult without agreed-upon methods to value and audit natural capital, such as the worth of air, water, or soil.

Most uses of the term "natural capital" distinguish it from man-made or infrastructural capital. The United Nations Environment Programme and the Organisation for Economic Co-operation and Development (OECD) use the term in slightly more specific ways. According to the OECD, natural capital refers to natural assets that provide resources and environmental services for economic activities. It is generally divided into three categories: natural resources, land, and ecosystems.

The concept of "natural capital" has also been used in the Biosphere 2 project and the Natural Capitalism economic model created by Paul Hawken, Amory Lovins, and Hunter Lovins. Recently, politicians like Ralph Nader and Paul Martin Jr., as well as UK government agencies such as the Natural Capital Committee and the London Health Observatory, have started using the term.

In Natural Capitalism: Creating the Next Industrial Revolution, the authors argue that the "next industrial revolution" depends on four strategies: conserving resources through better manufacturing, reusing materials as seen in natural systems, shifting values from quantity to quality, and investing in natural capital by restoring and maintaining natural resources.

Natural capital declaration

In June 2012, a 'natural capital declaration' (NCD) was introduced during the Rio+20 summit in Brazil. Created by the global finance industry, the declaration was signed by 40 business leaders who agreed to consider how natural resources affect financial decisions, such as loans, investments, insurance, and financial reporting. These leaders worked with other organizations to create tools and methods to include natural capital factors in how businesses operate.

The NCD has four main goals:
• Help businesses understand how they rely on natural resources like water, forests, and soil;
• Develop tools to help businesses include natural capital in decisions about financial products and services;
• Encourage agreement among businesses worldwide on how to include natural capital in financial reporting and decision-making;
• Promote including natural capital as an important part of how companies measure their success in reports.

Natural Capital Protocol

In July 2016, the Natural Capital Coalition (now called the Capitals Coalition) introduced the Natural Capital Protocol. This Protocol offers a standard way for organizations to find, measure, and value the direct and indirect effects they have on natural resources, as well as their reliance on these resources. It combines existing tools and methods to help organizations gather the information needed for important decisions that consider impacts and reliance on natural capital.

The Protocol was created through a special partnership of 38 organizations that signed voluntary agreements. This effort was led by Mark Gough, who is now the CEO of the Capitals Coalition.

The Protocol is available under a Creative Commons license and can be used free of charge by organizations.

Internationally agreed standard

Environmental-economic accounts help organize information about how the environment and the economy are connected. These accounts show how the economy affects the environment and how the environment supports the economy. From these accounts, clear and consistent measures can be created to help guide decisions and policies.

These measures are used for:
• Creating a green economy or promoting growth that protects the environment
• Managing natural resources wisely
• Supporting long-term development that meets needs without harming the environment

The System of Integrated Environmental and Economic Accounting (SEEA) is an international standard that provides rules and methods for comparing environmental and economic data across countries. The SEEA can be adjusted to fit the needs of different countries. A group called the UN Committee of Experts on Environmental-Economic Accounting (UNCEEA) oversees the use of the SEEA and helps improve its methods. The final version of the SEEA Central Framework was published in February 2014.

In March 2021, the United Nations Statistical Commission approved the SEEA Ecosystem Accounting (SEEA EA) standard. This standard is a way to measure ecosystems using clear and organized methods. Ecosystem accounts show information about the size, health, and value of ecosystems in both physical and money terms, linked to specific locations. After approval, the United Nations, along with other groups, released the ARIES for SEEA Explorer in April 2021. This tool uses artificial intelligence to help countries quickly and consistently measure natural resources. The tool was shared on the UN Global Platform to help countries use the SEEA more widely.

Private sector approaches

Some studies suggest a private sector natural capital "ecosystem" that includes investors, assets, and regulators. Classifying natural capital helps decision makers and allows governments and businesses to track their natural capital assets. Several systems have been suggested to divide natural capital into parts, such as land or timber, but many of these systems might not cover everything about natural systems.

One method involves creating Natural Asset Companies, which are a type of investment in natural capital.

Many governments have created policies to encourage the private sector to protect natural capital. However, the ways businesses operate and their practices have not changed much.

Criticism

Measuring the parts of natural capital in any area is a simple process. However, the work of assigning a money value to these parts, or to the goods and services they provide for free, has been a topic of disagreement. In the UK, Guardian writer George Monbiot has criticized the government's Natural Capital Committee and other efforts to assign a money value to natural capital or the ecosystem services it offers. In a speech about a report suggesting that better protection of UK freshwater ecosystems could improve their aesthetic value by £700 million, he criticized attempts to compare things that cannot be directly compared. He stated:

This idea is supported by Jeff Todd Tinton, a professor at Brown University. He argues that predicting economic value is unlikely to be accurate because the environment is very complex. He also says that current understanding of environmental capital does not fully consider the environment's importance to culture. Cultural values cannot be given a dollar amount, so some aspects of nature and the environment are not included in natural capital assessments.

Others support efforts to include the value of natural capital in local and national economic decisions. They argue that this approach helps balance environmental concerns with other economic pressures. They also say that "valuation" of natural assets is not the same as assigning them a money value.