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What is natural capital? Why integrating

  Jun 19, 2018

What is natural capital? Why integrating natural capital in our policy framework is necessary for a sustainable future?

What is natural capital? Why integrating natural capital in our policy framework is necessary for a sustainable future?
Natural capital is from of capital from which humans derive a wide range of services also called ecosystem services, that make human life possible. Some important ecosystem services include the food we eat, the water we drink and the plant materials we use for fuel, building materials and medicines. There are also many less visible ecosystem services such as the climate regulation and natural flood defences provided by forests, the billions of tonnes of carbon stored by peat lands, or the pollination of crops by insects. In order to have an unhindered supply of these services natural capital conservation and sustenance needs to be ensured.

India’s natural capital
India’s natural resources has 11% of the world’s floral and faunal species. India is one of the 17 most ecologically diverse countries. It is blessed with major biomes. These biomes directly contribute billions of dollars to the Indian economy annually. The financial value of India’s forests, which encompass economic services such as timber and fuel wood, and ecological services such as carbon sequestration is approximately $1.7 trillion.

Declining natural capital
Because of increasing economic activity, natural capital assets are declining. It is directly affecting the quality of life and potentially giving rise to future inefficiencies in the economy. A concept of ‘Earth Overshoot Day’ is popular among the scientists. This is a figurative calendar date when humanity’s total annual resource consumption for the year overshoots the earth’s capacity to regenerate it. This has been advancing every year at an alarming rate.

As there is limits to natural capital stocks, there is a need to rethink the cascading effects that this might have on the economy, the environment and society. There are nine earth system boundaries, which mark the safe zones. Beyond these zones there is a risk of ‘irreversible and abrupt environmental change’. Four of these boundaries have already been crossed, these are: climate change, loss of biosphere integrity, land system change and altered biogeochemical cycles(phosphorus and nitrogen cycles). The human activity has already altered the balance of a few delicate equilibriums. The effect of these delicate equilibrium processes are reflected by changing weather patterns, accelerated extinction events for both flora and fauna, and global warming. Therefore, there is a need for a comprehensive evaluation system that takes these undesirable side-effects of economic activities into account.
Natural capital has the potential to optimise resources and thus maximise the net benefits of economic growth and development. However, ignoring or undervaluing natural capital, can lead to projects with far higher negative externalities compared to the benefits. Therefore, natural capital and its role as a primary support system for the economy should be understood in totality.

Natural capital and ingenuity
Sustained and unhindered use of natural capital requires innovation and adoption of newer, more efficient technologies. This was demonstrated by one Californian fashion company. It expositioned this by developing a unique waterless ozone technology to address water shortage challenges during a four-year-long drought. The company was able to reduce its water use and water bills by 50%, saving at least $1,300 per month.

Unlike the economic value of goods and services, the intangible nature of natural assets is mostly invisible and hence remains unaccounted for. Sustainable use of natural capital requires a strong policy push and the adoption of valuation frameworks such as the Natural Capital Coalition’s Natural Capital Protocol. Integrating natural capital assessment and valuation into our economic system is critical to usher in a truly sustainable future for India.