What is “natural capital”?
The most commonly accepted definition for ‘natural capital’ is the environmental stock of renewable and non-renewable natural resources (plants, animals, water, air, soils, etc.) that provide humans’ social, ecological, and economic benefits. They include minerals, waste assimilation, carbon dioxide absorption, arable land, habitat, fossil fuels, erosion control, recreation, visual amenity, biodiversity, temperature regulation, and oxygen. The goods flow and environmental services support humans’ lives. Additionally, natural capital has a financial value considering the fact that its use dives many businesses worldwide.
What Kind of Benefits Are We Talking About?
The air we breathe, the water we drink, and the food we eat all come from nature. Nature provides us countless benefits, some of which we are unaware of. Sometimes, the benefits from nature are taken for granted. Just because it simply works that way doesn’t mean it is simple.
Trees and other plants clean out the air we breathe; wetlands filter the water we drink; the green urban spaces absorb and filter carbon from the atmosphere and protect us from storms; nature’s water ecosystems regulate the climate and prevent flooding.
Lose an Ecosystem, Pay More
The wide range of services that nature derives often is called ecosystem services and combined make human life possible. The real value of ‘natural capital’ is often overlooked. Poorly managed natural capital is an ecological liability in the first place but is also a social and economic liability.
Natural capital supports human and financial capital. Overexploiting natural capital can be catastrophic in many ways: biodiversity loss, decreased ecosystems productivity, and over time, resilience decline. Ultimately, this will lead to tremendous damages to humanity. Over time, human communities will face difficulties sustaining themselves, particularly in the already stressed ecosystems. Working against nature will reflect society: gradually, more and more regions will be hit by extreme events, such as floods and droughts. When climate changes, overpopulation, and pollution threaten nature, which will lead to starvation and severe conflict over already depleted resources.
The Wealth of a Nation or a Business Is More Than Just What Its People Can Produce.
The term natural capital can be described as an extension of the economic concept of capital. Any form of capital has the capability to provide a flow of goods and services. In the same way, components of the natural capital provide humans and other species of this planet with goods and services. The collective benefits from natural resources and processes are broad-spectrum and diverse. These benefits also are known as ecosystem goods and services and are the foundation for all economic activity.
The key to sustaining natural capital is proper valuation by the decision-makers. Namely, with specific calculations of the economic cost of these ecosystem services, with plans and agenda for future usage, we can save nature and its resources.
Natural Capital in Terms of Economic and Social Well-Being
The natural environment and everything used to benefit humans have a central role in sustaining economic and social well-being. The concept of natural capital draws attention to many organizations internationally. Both governments and the private sector are encouraged to start working on the ‘natural capital approach and get to the decision-making process. However, due to different perspectives, needs, and desires of the parties involved, there are various points of view on this ‘approach.’ Some may include mishandling or skipping the key critical turns of the ‘natural capital’ foundations in natural science and economics. In order to meet the requirements of all stakeholders, analysis needs to be based on the opinions provided by both ecological and economic perspectives.
Business Practices and Natural Capital
Natural capital stocks are degrading and decreasing exponentially due to current business practices, development patterns, and environmental modifications. In the first place, this has substantial environmental implications. Namely, the services provided by ecosystems are damaged and cannot function properly, thus starting the flow-on effects. A chain reaction occurs when greenhouse gas emissions increase and the areas responsible for carbon sequestration decrease, resulting in elevated global temperatures, changes in weather patterns, increased sea levels, etc. But, the decreased natural capital has financial implications as well. Resource depletion leads to increased market prices and an unstable economy.
Why Is Natural Capital an Issue?
Humans use natural capital for various purposes. Whenever a stock from the natural environment is withdrawn, it also needs to be renewed the spent part from the total capital. For example, the trees need to be replanted when a forest is cut for a particular purpose. Another example is to allow aquifers to replenish themselves after abstracting the water. If humanity constantly draws down natural capital stocks without allowing and encouraging nature to recover, the consequences will be catastrophic: local, regional, or even global ecosystem collapse.
Placing a Value on Nature
The monetary income derived from natural capital is called natural income. Over the years, economic theories and practices have neglected the protection of environmental resources and appropriate pricing of natural capital. If the trend of unchecked economic and societal development at the expense of nature continues to grow, natural capital stocks will continue to decline. The natural life support systems will face numerous problems, and consequently, the market prices will increase while the quality of human life will decrease.
No matter how fast the technology advances, there are certain products and services provided by natural capital that technology inventions cannot replace. While some alternatives are expensive, others are inefficient or impossible to create artificially.
Economics faces challenges in protecting the natural capital. Namely, the main issue is the inability to appropriately model and price both market and non-market environmental resources. Lack of investments and poor management are the biggest challenges in protecting natural capital. Experts face a challenge because of the lack of knowledge about the relation and reliance of resources and their actual value and usefulness or necessity.