A. Definition

Natural Capital is the environmental stock or resources of Earth that provide goods, flows and ecological services required to support life. Examples of natural capital include: minerals; water; waste assimilation; carbon dioxide absorption; arable land; habitat; fossil fuels; erosion control; recreation; visual amenity; biodiversity; temperature regulation and oxygen. Natural capital has financial value as the use of natural capital drives many businesses.

B. Main Features

Current business practices; development patterns; environmental modifications; exploitation of resources from other countries and government policies are degrading or decreasing stocks of natural capital. This not only has financial implications such as increased market prices due to resource depletion, but also environmental implications as services provided by ecosystems are damaged and unable to function effectively which in turn, causes flow on effects. For example, as greenhouse gas emissions increase and areas responsible for carbon sequencing decrease, global temperatures rise, weather patterns change, sea levels increase, terrestrial and aquatic ecosystems re-adjust and land usability patterns change.

Natural income is monetary income derived from natural capital. However, protection and appropriate pricing of environmental resources has been largely neglected by economic theories and practices. If economic and societal development is allowed to grow uncheck, stocks of natural capital will continue to decline, resulting in problems for natural life support systems, increased market prices and a decrease in the quality of human life.

Not all services or products provided by natural capital can be replaced by technology and some alternatives are either expensive or inefficient.

Problems related to the protection of natural capital include the inability of economics to appropriately model and price both market and non-market environmental resources; lack of willingness to pay; lack of knowledge about minimum levels or time spans required for resources to replenish or renew; lack of knowledge regarding the interaction and dependences between resources and their true value, usefulness or necessity; poor management of trans-boundary resources; and inequalities between developed and developing nations.

The concept of natural capital is used in other sustainability concepts and tools, including ecological footprints, environmental accounting and eco-efficiency.

C. Case Studies and Examples

1. Calculating Natural Capital
Dixon and Hamilton (1996) attempted to calculate the stock of natural capital in terms of US dollars per capita and percentage of stock for different global regions. They found a high percentage of most regions' natural capital was in the form of agricultural land. The Middle East had the highest economic value at US $63,041 per capita, of which 88% of its natural capital was in the form of minerals and fossil fuels.

2. Natural Income
In 1997, the World Resources Institute (WRI) estimated that the global pharmaceutical industry acquired US $75-120 billion from products using natural resources.

3. Wadden Sea
The Dutch Wadden Sea coastal wetland provides natural capital in the form of climate and water regulation; protection against soil erosion; habitat functions; biological control; waste treatment; food and raw material production; recreation; education and storage of solar energy. The coastal wetlands are fragile and under pressure from population growth, pollution and land reclamation. A study of the Wadden Sea identified its threats, carrying capacity and life support value of various natural capital functions.

D. Target Sectors / Stakeholders

Natural capital is of concern to all. However, economists, governments, non-government organisations and research institutions are responsible for developing policies and actions to protect natural capital.

E. Scale of Operation

Businesses and primary industries are well placed to reduce the negative impacts on natural capital and protect existing stocks.

F. Links

• Natural Capital Declaration
• Rocky Mountain Institute
• ConservationEconomy.net
• REC Paper Series No. 2 - Natural Capital of Central and Eastern European Communities
• World Resources Institute - Natural capital: Preserving the Resource Base
• William E. Rees, The University of British Columbia: Revisiting Carrying Capacity: Area-Based Indicators of Sustainability
• Johan van der Perk & Rudolf de Groot Case Study Critical Natural Capital: Coastal Wetlands: The Dutch Wadden Sea, Critinc Working Paper 12
• Dixon J and Hamilton K, 1996. Expanding the Measure of Wealth. Finance Dev. December, pp. 15-18