What is natural capital?

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In recent years the environmental issue—especially climate change—is a recurring topic in the public, private, social and academic sectors. In fact, they are carrying out specific actions in favor of the environment and sustainability, so it is important to know various concepts that involve it, such as knowing what natural capital is, its usefulness and why it is relevant.



What is natural capital and its importance

Natural capital is the reserve of materials or information contained within an ecosystem , according to Roberto Constanza (American economist). The idea of ​​natural capital continues with the thoughts of Herman Daly—American economist and environmentalist—who, based on his contributions to sustainable development , highlights:



The capacities of regeneration and Chile Mobile Number List assimilation must be considered natural capital. Failure to maintain these capabilities must be considered capital consumption, and therefore unsustainable.



Capital, both natural and man-made, can be maintained at different levels.



Herman Daly, American environmental economist.

In addition to returning to Daly's approach, Constanza emphasizes that the services of ecological systems and the reserves of natural capital that produce them are fundamental for:



The functioning of the Earth's life support system.

Contribute to human well-being, both directly and indirectly.

Represent part of the total economic value of the planet.

nature-what-is-natural-capital

Natural capital, as Constanza pointed out, is vital for the planet and for the well-being of humanity. Under this understanding, the economic aspect has gained relevance, since it is considered the basis for sustainable development . In fact, "long-term development is a process of accumulation and good management of a portfolio of assets: manufactured capital, natural capital, and human and social capital."



These definitions come from economists and ecologists, however, recently, a global entity has made contributions regarding this concept and its operation in terms of national and global economies. This entity is the World Bank who mentions:



As a gift from nature, natural capital has historically been the most abundant asset available to all countries at one point in their development, although the endowment has varied greatly between countries.



World Bank.

The World Bank emphasizes that traditionally the economy measured productivity based on labor and capital produced, then a multifactorial approach was integrated that included efficient management and technology. However, the importance of natural capital in economic growth was ignored.



value-what-is-natural-capital

In 2017, the Organization for Economic Cooperation and Development (OECD) integrated the environmental criterion to measure productivity, taking into account three factors: production, human and natural capital. In doing so, he found that some countries had increased their productivity, such as: Japan, Finland, Germany and the Russian Federation; in addition to Brazil, China, India and Türkiye.





These data allow us to observe the importance of nature for growth and productivity. As well as the difference that exists between renewable and non-renewable resources. That is, natural capital has different changes for development depending on the type of resources:



Renewable if managed sustainably, they can produce benefits in perpetuity. For example, improvements in the productive use of renewable energy can increase the benefits and, consequently, the value of these assets, even if the land area does not increase or even decreases.

resources-what-is-natural-capital

Non-renewable : Offers an opportunity to finance development by investing resource rents in other assets to replace depleted natural capital. Some countries, but not all, have taken advantage of this opportunity. Such assets are valued at market prices or use market price information to determine a value.

planet-what-is-natural-capital

So far, natural capital has been defined and its importance for sustainable growth and development has been emphasized. However, can it be measured?



Nature measurement

The importance of natural capital has already been observed, however, to know its real impact it is necessary to measure and account for it. The UN Statistics Commission adopted the System of Environmental Accounting-Ecosystem Accounting (SEEA EA) this means a great step to observe nature as an economic asset that can be preserved, managed and even access financing through him.



In other words, countries can calculate ecosystem services such as carbon storage, flood protection, and their contributions to the economy in a standardized way and with the same confidence as GDP is calculated to measure their economic output.



Natural capital accounting can help inform policy decisions by improving measures of productivity growth across the economy. Economic growth is key to poverty reduction and improved living standards.



World Bank.

money-what-is-natural-capital

Now, what is the Environmental Accounting System-Ecosystem Accounting? According to the UN , it is a statistical framework that is based on the biophysical information of ecosystems to:



Measure the services they provide.

Track changes in extent and condition.

Value the services and assets they have by linking them with measures of economic and human activity.

This system was developed by a multidisciplinary group of experts to respond to policy demands and challenges with a focus on making visible the contributions of nature to the economy and people. Under this objective, the system provides a structured approach to evaluate the dependence and impacts of the economy and human activity on the environment.



Specifically, natural capital accounting focuses on exposing the value of nature in economic terms, but also on specific values ​​it offers such as the following:



Anthropocentric values : These are those that focus on human beings.

Non-anthropocentric values: They focus on the environment.

Instrumental value: It is attributed to something as a means to achieve a specific end.

Intrinsic value: Refers to inherent value, that is, value that has independent of any human experience or evaluation.

Relational values: They are evaluated according to relationships, including relationships between individuals or societies, and other animals and aspects of the life world, as well as between individuals articulated by formal and informal institutions.

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These natural values ​​are translated into a monetary value, to do so two factors are needed:



The definition and scope of goods, services and assets included.

The valuation concept that is used.

Realizing the monetary value of natural capital is relevant, since in this way the different environmental services provided by ecosystems can be compared, and thus transactions between nations can be carried out. Although it is true that the monetary value will depend on the contexts in which natural capital is used, two aspects of the observed ecosystem services stand out, such as:



Inputs for the production of goods and services : In this case the values ​​of ecosystem services are "naturally" incorporated into the values ​​of goods and services in national accounts. For example, agricultural production, bee pollination or services provided by biomass.

pollination-what-is-natural-capital

Environmental benefits that are not found in national accounts: For example, forest air filtration services contribute to cleaner air whose value is not included in the production measures of national accounts.

Just at this point it is vitally important to measure natural capital. At the international level, the UN establishes the parameters on this, but national organizations also make contributions in this regard. In Mexico there is the Natural Capital Index ( ICN ), and to obtain it the following is done:



% ecosystems by % ecosystem quality.



air what-is-natural-capital

Where the number of ecosystems is the percentage of area occupied by terrestrial and aquatic ecosystems. While the quality of ecosystems is determined by the state (loss and fragmentation) of habitats. Although this measure is more biological than monetary, it gives a clear idea of ​​natural capital as a resource and its importance for the economy.



Natural capital becomes increasingly more complex, as time and international organizations determine its value; even being clear about this value helps make sustainable finance viable anchored in projects where natural capital is central.



If you want to delve deeper into the topic you can do so here.