Natural capital can be defined as the world’s stocks of natural assets that include geology, soil, air, water, and all living things. It is from this natural capital that humans derive a wide range of services, often called ecosystem services, which make human life possible.
Natural capital is another term for the stock of renewable and non-renewable resources (e.g. plants, animals, air, water, soils, minerals) that combine to yield a flow of benefits to people (Natural Capital Coalition). The term ‘natural capital’ is an extension of the economic notion of capital to the goods and services provided by the natural environment. The stocks, in this case, are natural capital and the flows are ecosystem and abiotic services.
Natural capital accounting
Natural capital accounting is the process of calculating the total stocks of natural capital in a given ecosystem or region. This process can be used to inform government, corporate and consumer decision making as each relates to the use or consumption of capital, and sustainable behaviour.
There are a number of global initiatives to support the development of natural capital accounting. They include:
- The System of Environmental-Economic Accounting (SEEA) that can be integrated with the existing United Nations System of National Accounts. The SEEA now has guidance on experimental biodiversity accounting.
- The Wealth Accounting and Ecosystem Partnership Services (WAVES) is global partnership led by the World Bank. It aims to promote sustainable development by ensuring that natural resources are mainstreamed in development planning and national economic accounts.
Natural capital accounting is not only gaining traction in government but in business and industry too.
Corporate natural capital accounting
Corporate natural capital accounts aim to document an organisation’s ownership, liability, and assets related to natural capital in the same way that an organisation records more conventional assets on their balance sheet. In July 2016, the Natural Capital Coalition released the Natural Capital Protocol to help companies account for natural capital.
Biodiversity is central to the natural capital framework and yet it is often missed by organisations. It is also cited as one of the most challenging aspects to account for. To address this, we and a number of other organisations have been developing approaches to account for biodiversity. These include the Biodiversity and ES in corporate natural capital accounting and Biodiversity at the heart of accounting for natural capital.
Figures reproduced with thanks to Natural Capital Coalition. 2017. “Natural Capital Protocol”. Available at www.naturalcapitalcoalition.org/protocol.