Natural capital is the value of everything that comes from nature — soil, air, water and all living creatures
Natural capital gives people the essential means for life. It supports society and the economy. The “capital” part of natural capital refers to the notion that there are some resources (or capital) in nature that we need to use to survive and that enable the production of more resources. For example, a forest supplies trees, a river brings us fish, and soil gives us vegetables.
Natural capital reminds us that the world has a limited amount of resources and that we pay for the consequences of abuse or misuse of these resources.
However, when a company or industry pollutes the air, it does not necessarily pay for that pollution right away. Nonetheless, somebody will pay the price eventually, in the form of sickness, for example, which has a cost in terms of medical treatment and lost work. The same goes for soil pollution, greenhouse gas emissions, or fossil fuel consumption.
What is unpriced natural capital?
When businesses use natural capital, the cost they pay for this use does not reflect a big chunk of what they should be paying when we consider the harm to the environment.
When companies or people don’t pay for their abuse or misuse of nature, we call this unpriced natural capital. This type of misuse can damage ecosystems and degrade the environment.
When the ecosystems or environment are hurt, this also harms society and the economy. It is estimated that more than half of global production depends on nature. This means that if we calculated unpriced natural capital into companies’ balance sheets, most industries wouldn’t be profitable.
Investing in better uses of natural capital has big benefits for the economy and the climate. Examples of good investments include:
- new ways to farm that use less water
- alternatives to eating beef
- using fewer plastics in packaging
- restoring and protecting degraded land
- or bringing back wildlife areas.
The World Economic Forum predicts that paying for the use of natural capital, and protecting nature and biodiversity, could generate $10 trillion annually and hundreds of millions of jobs in sectors such as farming, fashion and consumer goods.
How the public sector can help protect natural capital
The public sector has an important role to play in encouraging policies and incentives for consumers and producers that protect natural capital. Public banks like the European Investment Bank invest broadly in climate action and environmental sustainability. They often work with other multilateral banks and trade groups to develop better standards for green investing.
Public banks can also increase investment in areas of nature where the rate of investment is low. This can help protect the oceans or forests or wildlife. This type of work tackles climate change, whilst providing immediate benefits for natural capital.
Governments and the public sector need to make companies aware of what they’re doing and play a role in encouraging industries to pay for their full use of natural capital.
