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Natural Capital

What is Natural Capital

Natural capital is a means of mapping the relationship between natural resources and the costs business operations imposed on these.

Many producers rely heavily on natural resources, for example as raw materials or an energy source. The consumption of natural resources can have a significant impact on Natural Capital. Natural Capital refers to physical resources like water, timber, and soil. In addition to physical resources, Natural Capital includes the services the environment provides to society. Referred to as ‘ecosystem services’, some examples of these are flood/landslide protection, regulation of the water cycle, air filtration, and soil nutrient cycling among others.

Often, we do not realise or appreciate how much we rely on free ecosystem services. Instead, we only put a price on the market value of the material. This view only considers the raw good, and not the materials worth had it been left in its natural environment.

For example, forests play a large role in regulating the hydrological cycle, filtering toxins out of the air, and reducing the risk of landslides on steep slopes. When a forest is clear-cut, the lost value from the now non-existent ecosystem services is not taken into account. Without the forest, societies end up “paying” for inconsistencies in water availability, health costs associated with higher air pollution, and the increased risk of property damage from landslides. Assigning a monetary value to these ecosystem services clearly shows how the market price of the resource compares to the true value it has to society. Tools like monetisation using the Natural Capital approach help to highlight these comparisons and make more informed decisions.

Natural Capital methodology

Ecomatters has developed the following freely available document: Natural capital – Ecomatters implementation guide.

Implementation Guide

This implementation guide provides practical guidance on the implementation of the natural capital assessment methodology based on the EPS (Environmental Priority Strategies in product design) system (Swedish Life Cycle Center, 2015). The goal of this methodology is to gain insight into, quantify, and monetise natural capital impacts along the product value chain.

The background for this is that in July 2016, the Natural Capital Protocol was launched to support companies to incorporate natural capital impacts in their decision-making processes (Natural Capital Coalition, 2016). Although providing a standardised framework to identify, measure, and value impacts and dependencies on natural capital, the Protocol remains flexible in the choice of measurement and valuation approaches used. The Protocol thus does not explicitly list or recommend specific tools or methodologies. As a result, there is a strong call for practical implementation methodologies.

As a specialist in the field of life cycle management, Ecomatters has sought to find a monetisation method applicable to the full spectrum of a company’s life cycle impacts, products, or activities as determined by means of Life Cycle Assessment (LCA). We believe to have found a suitable method in the EPS system (Swedish Life Cycle Center, 2015). EPS (Environmental Priority Strategies in product design) was developed in the 1990s by the Swedish Life Cycle Center (former CPM, at the Chalmers University of Technology) and has since been updated to follow the ISO 14040 and 14044 standards. This paper discusses the implementation of natural capital assessment based on the EPS system and illustrates the specific procedure using the value chain of a book as an example.

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Max Sonnen

Managing Director
Marco Mense

Marco Mense

Senior Consultant

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