Natural capital is the stock of ecosystems that provide a flow of ecosystem services to people. Environmental-economic accounting is an emerging field in international economics that quantifies and analyses shifts in the value of natural capital, so that management of nature-based assets can be improved and integrated into a more holistic form of decision making.
3 min read | Last updated 22 March 2021
Natural capital is the stock of ecosystems that provide a flow of ecosystem services to people. Stocks are a source of provisions to people, such as minerals, water, forests, land and oceans. Some are non renewable, such as oil and gas; others are renewable, such as freshwater, forest fibres and fish, as long as they are harvested at a rate that is less than their natural rate of replenishment. We must leave sufficient stocks intact to benefit from the ecosystem services they produce, such as air and water filtration, hazard protection, climate regulation, pollination and recreation. If we draw down too much or create too much waste, ecosystems can be left diminished or degraded and may collapse (NZIER, 2017 (pdf)).
We see the value of nature in two ways: it has biocentric value (if humanity did not exist, nature would exist without us) and anthropocentric value (if nature ceased, humanity would cease). Businesses using integrated reporting will be somewhat familiar with natural capital, having examined inputs to, and outputs from, their operations, but may not have considered its whole value range, which is expanded on below.
|Value from flows of benefits|
Direct use value
– provisioning ecosystem services, including consumption use (eg food, freshwater, wood, fibre, fuel) and and non consumption use (eg aesthetic, spiritual, educational and recreational)
Indirect use value
– regulating ecosystem services (eg regulation of climate, floods and disease, water purification)
Option use value
– potential future use
– satisfaction from knowing species exist
– ensuring that ecosystem services are preserved for generations
|Value from stocks of natural capital|
– ability to maintain support of ecosystem services through ecosystem functions (eg nutrient recycling, soil formation, primary production)
|Value from non human perspective|
Intrinsic ecological value
– value that does not directly or indirectly benefit humans
Our biophysical relationship with ecosystem services is not the only way in which we interact with nature; we also relate to it psychologically and spiritually. Thus, nature can affect our physical, mental and social health (Seymour, 2016). The links between life sciences, social sciences and health sciences were first articulated in the conceptual framework of the Millennium Ecosystem Assessment, 2005, strongly influencing multidisciplinary research.
The health of the ecosystems on which we and other species depend is deteriorating more rapidly than ever. We are eroding the very foundations of economies, livelihoods, food security, health and quality of life worldwide.
The business sector still operates on the 20th century basis of ‘weak sustainability’, the belief that the current generation can justifiably convert natural resources into economic capital to build wealth and wellbeing because future generations can use technological progress (built from that wealth) to overcome the depleted natural capital and high levels of pollution they will inherit. The 2021 Dasgupta Review on the Economics of Biodiversity enumerates how humanity has advanced at the cost of nature. Produced capital per person doubled and human capital increased by 13% globally between 1992 and 2014, while natural capital stock reduced by 40%. Our economy has developed such that the true value of nature is not reflected in market prices, creating a market distortion. If organisations continue to externalise their environmental costs onto other people and future generations, this systemic distortion will persist.
Yet, we cannot continue to separate our ecosystems and economic systems, since not only are ecosystem functions very negatively affected by economic activities, our economic activities very heavily rely on ecosystem services. Nature has limits (eg mass, variety, interrelationships, location and rate of cycling) that must be taken into account in our economy.
The Dasgupta Review has three key suggestions:
- Get ecosystems and economic systems onto an even keel: ensure that our demands on nature do not exceed its supply and increase nature’s supply relative to its current level
- Adopt natural capital accounting into national accounting systems (ie progress from GDP as the primary measure of success) and use natural capital information to improve decision making at scale
- Transform institutions and systems to enable and sustain these changes
Following the Dasgupta Review, the UN adopted a new framework – the System of Environmental-Economic Accounting—Ecosystem Accounting (SEEA EA) – that includes contributions of nature when measuring prosperity and human wellbeing. This framework advances GDP economic reporting to reflect the dependency of the economy on nature and the impacts of the economy on nature, and will play a significant role in the adoption of a natural capitals approach to performance measurement for business and finance.
“This is a historic step forward towards transforming how we view and value nature. We will no longer be heedlessly allowing environmental destruction and degradation to be considered economic progress.”António Guterres, UN Secretary-General