Natural Capital: Often Ignored But Of Vital Importance

Natural capital must be saved to protect the world from resource crisis.
Natural capital must be saved to protect the world from resource crisis.

Natural capital refers to the stock of natural resources in the world, which include water, air, soils, geology, and living organisms. They provide free goods and services, and they are referred to as ecosystem services. Natural capitals that support the economies and societies as well as making human life possible are fertile soils and clean water. Natural capital is an extension of the economic capital, goods, and services derived from the natural environment. For instance, a forest or a river could provide a sustainable source of trees or fish. Overexploitation of these resources may result in an irreversible or permanent shortage of products such as timber or fish stocks. Besides, they also provide essential services such as control of soil erosion, water catchment, source of pollination for crops, etc. This, in turn, ensures the viability and longevity of other natural resources. Natural capital assets provide a supply of continuous services, which depend on crucial components of the natural capital, such as the functioning health of the environment, diversity, and the structure of ecosystems and habitats. Natural capital assets check is one of the methods used to assist decision-makers in understanding how present changes and future performance of these natural capital assets will affect the economy and human well-being.

The Origin Of The Concept Of Natural Capital

Ernst Friedrich Schumacher was the first person to use the term “Natural capital” in 1973 in his book titled “Small Is Beautiful.” Later other scientists like Robert Costanza and Herman Daly, among others who founded the science of Ecological Economics, expanded on the use of the term. Natural capital has become a central concept in economic assessment and valuation of ecosystem services. The concept is based on the idea that non-human life generates goods and services, which are essential to human life. Therefore, natural capital is crucial to the sustainability of the economy. In traditional economics, natural capital would ordinarily be categorized as land that is different from the traditional capital. Traditionally, there has been a distinction between capital and land. The capital was originally defined as human-made goods, and the land was defined as occurring naturally and having fixed supply. However, in modern times land is no longer seen as having a fixed productive capacity because human actions can improve or degrade natural capital over some time. Besides, natural capital can yield goods and other benefits that can be harvested by humans.  

It Is The Basis Of Life

Unlike other forms of capital, natural capital plays the fundamental and crucial function of supporting life. Natural capital is the basis of all life forms that include human and non-human. It is the world’s ecosystem, which contains the economy and not the opposite. Throughout history, humans have existed without the existence of other forms of human-made capital. However, life is not possible without some form of natural capital. Nature can withstand piecemeal destruction over an extended period; however, a certain threshold may not be exceeded. Beyond such a threshold, the entire ecosystem could collapse. According to scientists, there are limits to excessive depletion of resources. Natural capital is life support resources, and they are not substitutable. Their degradation will eventually result in irreversible catastrophe. The basic nature of natural capital makes it difficult to estimate or even approximate their exact value accurately. Therefore, natural capital can be described as priceless, and their value to human life is infinite.  

Illustration Of A Conservative Estimation

An example of natural capital is the atmosphere’s biogeochemical cycle and the ozone layer. Other basic ecosystems function in the same way. Professor Robert Costanza and a team of scientists in 1997, set out to quantify the value in dollars of the world’s ecosystems. The scientist developed 17 discrete categories, which they named ecosystem services. These categories included items such as food and raw materials. Also included were how the forests generate oxygen from carbon dioxide, how wetlands protect coastal parts from storms, cultural uses, and recreational uses, among others. The scientists wanted to know how much we would pay for such services if they were not naturally available. Their estimate was $33 trillion, equivalent to almost $50 trillion in current values. At the time, they were way more than the entire world GDP. Later the scientists revised their earlier estimates, stating that the 1997 estimates fell quite short. The revised estimate was put at $142.7 trillion.

Some Natural Capital Is Not Reversible If They Are Destroyed

Other types of natural capital are so unique because they cannot be restored or rebuilt once they are destroyed. Destroying some of the natural capital is permanent and irreversible, or at best, they are quasi- irreversible. It has been established that some types of environmental assets are non-substitutable, which is fundamentally different from other types of capital. For instance, human-made capital can be destroyed and reconstructed once again. Although the reconstruction may be costly and could take some time, in principle, it is possible. Destruction of natural capital, for instance, the destruction of biodiversity, could lead to an extinction of some species, which is impossible to bring such species back to life. An example of a quasi-irreversible case is global warming and the destruction of the ozone layer. The climate and the ozone layer may regenerate to their former condition if they are given enough time, which may be too long from a human point of view. Another example of quasi-irreversible natural capital is the consumption of non-renewable resources.

Natural Capital, Other Types Of Capital And Ecosystem Services

Natural capital is made up of living and nonliving components within an ecosystem that excludes what they manufacture and people. They contribute towards generating goods and services to be used by humans. There are different types of capital assets that include human capital (health, experience, skills, and knowledge), social capital (institutions and relationships), financial capital (monetary wealth), capital assets (machinery and buildings), and natural capital. Different types of capital interact in different ways to generate goods and services. For instance, fish harvested would depend on the available fish stocks (natural capital) that depend on the quality of the habitat (natural capital). Fish harvesting would also depend on vessels used (financial capital and manufactured capital), experience, and skills of fishermen (human capital), as well as governance on fisheries (social capital). Ecosystems fulfill and sustain humans through ecosystem services. The ecosystem services refer to the processes and conditions that generate or help in generating benefits for us. These benefits are a result of the interaction of microbes, animals, and plants in the ecosystem. It also involves the interaction of biotic, abiotic, and human-made components.  

Significance Of Natural Capital

Ecosystems provide numerous services, and they include both visible and invisible products. Some of the physical products derived from the ecosystems include food, fuel, water, fibers, and many others. Most of the services we get from the ecosystem are hidden from our view. Some of the invisible roles of the ecosystem include maintaining of the genetic library, fixing nitrogen and carbon, preserving and regenerating soils, controlling floods, recycling nutrients, filtering pollutants, mitigating droughts, maintaining gaseous composition of the atmosphere, operating the hydrological cycle, pollination of crops, and assimilating waste among many other roles. Because some of these services are not visible, it might be easy to overlook them.

Natural Capital Declaration 

In the Rio Earth Summit of 1992, member countries set the agenda of dealing with environmental issues, and they set up new conventions on climate change, biodiversity, and desertification. However, the Rio+20 summit that took place twenty years later was an initiative of leaders from the private sector, who were responding to the effects of widespread degradation of ecosystems and the impacts they have on businesses as well as the economy in general. They resolved that natural capital should be integrated into considerations such as equity, loans, insurance, and fixed income products, and finally, into disclosure, accounting, and reporting framework. The summit had four main aims that included increasing the understanding and the dependence of businesses on natural capital, supporting the development of tools that would integrate natural capital in all financial services and products as well as decision-making processes. It included building a global consensus on the integration of natural capital into decision making and accounting records in the private sector. Another aim was to build a consensus to include natural capital on integrated reporting.   

Natural Capital Protocol

The natural capital protocol was released by the Natural Capital Coalition in July 2016. The protocol establishes a standard framework for companies and other organizations to measure, identify, and value both direct and indirect effects and dependence on natural capital. The protocol harmonizes the already existing methodologies and tools and gives guidelines to organizations on the information they require to make operational and strategic decisions that include dependencies and impacts on natural capital. The protocol was developed in a collaboration of different world-leading organizations in different sectors such as policy and conservation, finance, standard-setting, membership organizations, science and academia, accountancy, and business. These organizations signed pre-competitive and voluntary contracts. It is now freely available for organizations to apply the protocol.


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