Some notes about Natural Capital

Natural capital is an idea whose time has come. It takes the analysis of the environment to a new level, way beyond the conventional sustainability and sustainable development approaches that have dominated in the last couple of decades.

The reasons why natural capital is the way to think about the great environmental challenges we face is because of three characteristics. Natural capital is all about assets – the assets nature provides to us for free; it forces us to see the environment as a (or indeed the) key input into the economy, ending the apartheid between economic growth and protecting and enhancing the environment. Moreover, by focusing on capital maintenance, natural capital makes a clear distinction between renewable and non-renewable assets.

Damage to the natural environment accelerated during the twentieth century, and is now already reducing economic growth and development. The threat of climate change is widely understood. Perhaps less so is the destruction of biodiversity and ecosystems, from the loss of the great rainforests to the declines of wildflowers, insects, birds and mammals. As these disappear this century, we will come to realise what we have lost, and how much of our economic wellbeing depends upon a flourishing natural environment.

To stop the rot, we need to keep the aggregate of natural capital from falling further. Indeed it needs to be improved. Not everything can be preserved, but what is damaged should be compensated for with gains elsewhere. Natural capital needs to be maintained and enhanced. For non-renewables – natural capital that can only be used once (such as oil, gas and minerals) – it is a matter of which generation uses it. But when it is depleted there needs to be compensation, and the surplus revenues should be used to protect and enhance renewables. The natural capital model just keeps on giving, provided we do not deplete it below the critical thresholds.

The new interest comes from carbon sequestration and its critical role in meeting the net zero 2050 targets, and the company targets under pressure from ESG (environmental, social, and governance) rating. The risks of a silo approach to natural capital are obvious.

Natural Capital

Natural Capital

Natural Capital

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