Natural Capital: A Definition for Business Owners

One of the fundamental features of sustainable business is the concept of the triple bottom line. Rather than just focusing on growing financial profit, a sustainable business will take into consideration its social and environmental impact as well. This requires recognizing the value that lies in both social and natural capital, in addition to financial capital.

Ray Anderson, former CEO of Interface, described this in post titled “Is Interface’s Sustainability Strategy Still Relevant?”:

“Soon, “green” was becoming mainstream, a crowded field of corporations, governments, academic study, and celebrity endorsement. Today, it’s mostly a healthy mix of doing the right thing and good old capitalism in action, in which “natural” capital takes on value along with financial capital.”

But what exactly is natural capital?

According to the International Institute for Sustainable Development, “Natural capital is the land, air, water, living organisms and all formations of the Earth’s biosphere that provide us with ecosystem goods and services imperative for survival and well-being. Furthermore, it is the basis for all human economic activity.”

Natural capital is continually providing us with something of value, whether it is the air that we breathe, the water that we drink, or the raw materials that we use in our products. The problem is that we have not traditionally placed a financial value on these natural resources. By not placing a financial value on them, it became easy to destroy forests, pollute rivers, endanger species and habitats, and otherwise plunder our natural resources.

Now, however, we are starting to recognize the value of natural capital. In fact, one early study estimated that the value of natural capital worldwide is $33 trillion per year. In 2008, humans destroyed $6.6 trillion worth of natural capital – equivalent to 11% of the global GDP. The top 3,000 companies by market capitalization were responsible for $2.15 trillion in environmental costs. Unfortunately, under our current economic system, these costs are externalized, which means that while these companies caused this damage, they are not footing the bill for it. In many cases, it is the local communities and taxpayers that ultimately pay the price (the BP oil spill in the Gulf is but one example of this).

If this were cash, we would be appalled to see it squandered so recklessly. However, because these costs aren’t factored into our current economic system, this waste goes largely unrecognized. That’s why natural capital is important: it has value, and once we recognize that, we have a responsibility to spend it wisely.

What does this mean for your business?

The calculations for placing a financial value on natural capital in a business are still being developed, but there are simple ways that you can begin to consider natural capital in your business. For example, removing waste from your production process will conserve natural resources – while also possibly providing cost savings to you as well. Using materials that can be more rapidly renewed, such as bamboo, will ensure that the most scarce of our natural resources are preserved – while also building your products around a resource that may be more abundant in the long-term.

Although we are still figuring out how to accurately value natural capital, this is the direction in which we need to move. It’s part of a new modelĀ for sustainability in business.

The businesses that begin to consider natural capital in their decisions now will be the ones to gain a competitive advantage in a future of constrained resources.

Comments

  1. From an agricultural perspective I have developed a process to account for natural capital and its resulting ecoservices. My book EcoCommerce 101:Adding an ecological dimension to the economy will be released on January 31st. It is a working model of valuing natural capital in an agro-economic environment.

  2. Carolina Miranda says:

    Thanks for the information, Tim. Just checked out your website, and I’ll be on the lookout for your book.

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