Natural capital

“Calling nature capital can make dependence visible. It must not make nature seem replaceable. ”

Economic accounts record buildings, machinery, financial assets and labour, yet much of the natural foundation on which those assets depend appears only when it is extracted, sold or damaged. Natural capital was developed as a way to correct that blindness. It treats nature as a stock whose condition supports flows of benefits over time.

The Natural Capital Protocol defines natural capital as the stock of renewable and non-renewable natural resources, including plants, animals, air, water, soils and minerals, that combine to yield a flow of benefits to people. The stock-and-flow distinction links this chapter to ecosystem services. A wetland is part of the stock; water regulation, habitat and recreation are among the flows it can support.

The metaphor is powerful because it asks a familiar economic question: are we living from the return or consuming the asset?

A farm may maintain income for several years while depleting soil, groundwater or tree cover. Conventional accounts record production. A natural-capital lens also records the declining capacity that future production requires. National accounting has begun to formalise this perspective.

The UN System of Environmental-Economic Accounting - Ecosystem Accounting, adopted as an international statistical standard in 2021, organises information on ecosystem extent, condition and services alongside economic data. Physical accounts come first: hectares, water volumes, species condition, soil or carbon. Monetary valuation can then be used where it supports a defined decision.

Botswana’s water accounts provide a concrete example. Developed through the WAVES partnership and national institutions, the accounts brought together water abstraction and economic data across sectors.

They helped reveal that major self-providers, including mining and agriculture, accounted for a substantial share of abstraction, drawing policy attention beyond public water utilities. The value was not a single price for water. It was a more complete picture of dependence and use. Natural-capital assessment can operate at company level as well.

A business can identify dependencies on water, soil, pollination or climate regulation; pressures it creates; changes in stock condition; and costs borne by society. This can improve materiality, investment and risk decisions, especially where conventional prices fail to signal scarcity or ecological thresholds. But the language carries risks.

Capital normally implies an asset that can be owned, valued and substituted. Ecosystems are not machines, and many ecological losses cannot be replaced by manufactured capital. A monetary estimate can inform a decision without representing the full value of a species, territory or cultural relationship.

The Dasgupta Review used the natural-capital framework to argue that economies are embedded within nature and that demand on the biosphere has exceeded its capacity in many areas. Critics such as Clive Spash warn that translating biodiversity into economic assets can narrow ethical and political questions into valuation exercises. Both perspectives matter.

The framework can expose economic dependence while still failing if it treats price as the measure of importance. Aggregation is another danger. A national increase in plantation biomass may mask loss of native forest, biodiversity and community access. A company may report a positive natural-capital balance by adding unlike assets that are not ecologically or socially interchangeable.

Stock condition should be reported with enough specificity to prevent compensation on paper from hiding irreversible loss. Rights remain outside the account unless deliberately included. Land, water and forests may be territories, commons and sources of identity, not simply assets available for optimisation. Valuation cannot create consent or cancel legal and customary rights.

A high economic benefit does not grant permission to impose harm. Used responsibly, natural capital is therefore a lens for dependency, condition and intergenerational choice. It should begin with physical reality, ecological thresholds and affected people, then use valuation where it improves a specific decision. The aim is not to put a price on everything.

It is to stop decision-makers treating the foundations of value as though they were free, infinite or replaceable.

Practical application

Define the decision first. Identify relevant natural-capital stocks, their condition, the services they support, beneficiaries, pressures and thresholds. Use physical measures before considering monetary valuation, and keep distinct assets visible rather than collapsing them into one score. Document whose values and rights are represented.

Test whether an apparent gain depends on substitution that is ecologically impossible or socially illegitimate. Link the assessment to investment, procurement, risk or restoration decisions.

Why it matters

Natural capital makes environmental dependency visible inside economic and organisational decision-making. It can reveal depletion hidden by short-term production and help direct resources towards maintaining the stocks on which future wellbeing and enterprise depend.

Common misconception

Natural capital is often assumed to mean putting a financial price on nature. Monetary valuation is one possible tool, not the definition. Natural-capital accounting can remain physical, and no valuation removes rights, ecological limits or values that cannot be substituted.

Connections

Ecosystem services are the flows generated by natural-capital stocks. Biodiversity helps determine their condition and resilience. Materiality identifies which dependencies and impacts require organisational attention. The next chapters turn from the broad stock to specific foundations, beginning with soil health.

A question worth asking

Does your natural-capital assessment change a real decision about use, protection or investment, or does it merely assign a number to a dependency the organisation continues to deplete?

Selected references

Natural Capital Coalition. 2016. Natural Capital Protocol. United Nations. 2021. System of Environmental-Economic Accounting - Ecosystem Accounting. Dasgupta, P. 2021. The Economics of Biodiversity: The Dasgupta Review. Government of Botswana. 2015. Botswana Water Accounting Report 2012/13-2013/14. Spash, C. L. 2022. The Dasgupta Review Deconstructed. Globalizations 19(5): 653-676.