What on Earth is ‘natural capital’?

Macushi girl playing in river in Rupununi, Guyana

Macushi girl plays in a river in Guyana’s Rupununi region. (© Pete Oxford/iLCP)

Editor’s note: From “climate adaptation” to “blue carbon,” from “landscape approach” to “ecosystem services,” environmental jargon is everywhere these days. Conservation International’s Human Nature blog looks to make sense of it in an occasional explainer series we’re calling “What on Earth?”

In this installment, we break down “natural capital,” a concept that could revolutionize the way nature is protected.

What is “natural capital”?

It’s the stock of renewable and non-renewable natural resources (e.g., plants, animals, air, water, soils, minerals) that combine to provide benefits to people.

What kind of benefits are we talking about?

The air we breathe, the water we drink, the food we eat, the wildlife that maintain healthy ecosystems, the forests that absorb carbon from the atmosphere and regulate climate — all of that comes from nature.

So natural capital is simply “stuff that nature does”? That seems rather broad.

Here’s another way to think of it: Imagine that nature is a trust fund, and humans are the beneficiaries. Humans live off the “interest” that the fund provides — the air, water, raw materials, carbon storage and its ability to regulate climate and mitigate floods, and so on. If humans keep dipping into the capital — by clearing too much forest, for example — we’re going to see diminishing returns from those dividends, to say nothing of their ability to continue to provide benefits over time.

Natural gas-powered electricity power plant at Moss Landing, California. Everywhere on Earth, people depend on natural capital — the stock of renewable and non-renewable natural resources (e.g., plants, animals, air, water, soils, minerals) that combine to make our lives possible. (© Keith A. Ellenbogen)

Natural gas-powered electricity power plant at Moss Landing, California. Everywhere on Earth, people depend on natural capital — the stock of renewable and non-renewable natural resources (e.g., plants, animals, air, water, soils, minerals) that combine to make our lives possible. (© Keith A. Ellenbogen)

That makes sense as an idea, but what does it mean in practice?

First, you have to identify which of our most important dependencies (the benefits we rely upon) are from nature, and the impact we have on the ecosystems that provide those benefits. This often will require an understanding of what these benefits (or impacts) are, who benefits from them and for what purposes, as well as how these benefits flow to specific users.

A great deal of natural capital is in the tropics — that’s where many of the world’s biggest natural repositories of carbon, wildlife and fresh water are (think rainforests, wetlands and the like). This represents a bulk of the “trust fund” — or stocks — from which we can identify how dividends flow to a range of users. Knowing the size of the stocks and the flow of the dividends over time to specific users — information that can be mapped — are critical to figure out the value of both the benefits and the stocks that provide them. Ultimately, the value is intended to help policymakers and decision-makers better understand the critical role of nature in economic development, and to inform a wide range of policy decisions and management choices by public, private and financial sectors.

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 Placing a value on nature — that seems kind of cold-hearted, no?

“We have historically ignored [nature’s] benefits and the value they provide to society,” says Rosimeiry Portela, an ecological economist with the Moore Center for Science at Conservation International. “Those benefits have been taken for granted — and we are using them at a rate that the Earth cannot replenish.”

In a world of finite resources, she says, many see the valuation of nature’s benefits as a way to make the contribution of nature to livelihoods and economies visible. This can inform more sustainable choices, including market-based conservation, which can be crucial for protecting nature from unrestrained consumption. Individuals, business and society depend on and impact nature, so by establishing nature’s value, we can foster efforts to account for nature’s benefits and ensure their continuous flows over time.

So why would a business want to “account” for the value of its natural capital?

To create value and to grow, every business has to be efficient and make better decisions — and if you’re not incorporating natural capital into your decision-making, you may be missing risks and opportunities.

An example: If you’re a coffee company, you need a steady and sustainable source of high-quality beans — and for that, you rely on water and pollination from the surrounding habitat that coffee crops require. If your suppliers in Central America degrade these habitats — or if climate change alters how or where your coffee crops can grow — the quality or quantity of your supply can suffer, or you could alienate consumers who want a product that doesn’t cause deforestation. These are risks that could hurt your bottom line.

This video from the World Business Council for Sustainable Development sums it up nicely (story continues below):

Got it. But how do you quantify nature’s value in your business?

You need some kind of standardized system for it that you can apply across the board — any business sector, in any geography, at any level. That’s where the Natural Capital Protocol comes in.

What’s the Natural Capital Protocol?

The Protocol is a new framework designed to help generate credible and actionable information to help businesses measure and value their impacts and dependencies on natural capital, enabling them to, in essence, integrate nature into their operations. Developed jointly by the World Business Council for Sustainable Development, Conservation International, the International Union for Conservation of Nature and others, the Protocol already counts the support of 50 major companies, including Coca-Cola, Dow, Hugo Boss, Kering, Nestle, Roche and Shell, Portela says.


Further reading


Give me some examples of companies that are valuing natural capital.

A key component of natural capital — water — offers a few interesting examples. Puma, the sports apparel maker, has measured the impact of its water use across its entire supply chain, from its own operations to raw materials production. Being able to measure and monitor the natural capital it relies upon is helping Puma reduce its environmental impact, including working with manufacturers in its supply chain on responsibilities and costs associated with water usage, and exploring new materials and products that are more water-efficient.

For Coca-Cola, water scarcity is a clearly natural capital dependence, and one that poses a risk to its business model. As a result, the company has made efforts to measure the water that it returns to the environment, as well as to improve how it manages water and conserves freshwater ecosystems. Coca-Cola has an ambitious target to safely replenish as much water as it uses in its beverages by 2020; by the end of 2012, it had replenished more than half of the water it used.

How would companies use this Natural Capital Protocol?

The Protocol and relevant documentation — available online at naturalcapitalcoalition.org/protocol — describe how to identify, measure and value the parts of nature that businesses rely on and impact.

“It’s a very pragmatic framework that can be used by any business, in any geography, any sector, to make better management decisions,” Portela says. An indicator of the relevance of this kind of framework, she says, is the fact that some originally proprietary methods to measure business impact and dependence on natural capital have now been made available through the Protocol, and can be used by companies that seek to better understand and manage their interactions with nature.

What happens next?

Portela says that proponents of the Protocol are confident that more businesses will see that it’s in their interest to understand their impact and dependence on nature, and act accordingly.

“This is a global movement of companies, academia, non-profit organizations and other initiatives that are coming together, hoping to provide an important path for businesses to be better stewards of nature.”

Find out more: Rosimeiry Portela discusses the Natural Capital Protocol in this interview for Conservation International’s “Inside Science.”

Bruno Vander Velde is Conservation International’s editorial director.

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Comments

  1. Edward Hanson says

    Quantifying natural capital is a logical, common sense approach to forcing businesses to consider ALL of the costs of doing business, from start-up to cleanup, before embarking on environmentally destructive capital ventures. It is most effective when the capital value of a natural system, in dollars and cents, must be compared to having to provide the same benefits from corporate/engineering sources, which is typically cost-prohibitive.

  2. Curtis says

    The concept is excellent, but the hugs hurdle to overcome is how to implement the nature economy on a global scale.
    How do you connect the conscientious corporation with the land steward? Only then can we approach sustainability on a global scale.

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