What is Natural Capital
Natural capital is the conversion of various qualitative factors into financial terms in order to accurately compare environmental performance of a product or service. To put it simply, natural capital translates impacts into one globally understood metric — money — helping businesses to get better insight in their risk profiles realted to environmental impacts.
Many producers rely heavily on natural resources, either as raw materials or energy sources. The consumption of natural resources can have a significant impact on a factor called Natural capital. Natural Capital refers to physical resources like water, timber, and soil. In addition, Natural Capital also includes the services the environment provides to society. Flood/landslide protection, regulation of the water cycle, air filtration, and soil nutrient cycling among others are examples of “ecosystem services”.
Many times, we do not realize 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 what the material is worth if it had 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 monetization and Natural Capital Accounting help highlight these comparisons and make more informed decisions. Using these tools helps to clearly seen how sustainable timber harvest can indeed reduce future costs to society. Then, businesses can better manage risk and make better business decisions.
Natural Capital methodology
Ecomatters has developed the following free-lee usable document: Natural capital – Ecomatters implementation guide.
This implementation guide provides practical guidance on the implementation of the natural capital assessment methodology as 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 monetize natural capital impacts along the product value chain.
The background for this is: 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). While providing a standardized 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 on life cycle management, Ecomatters has sought to find a monetization method applicable to the full spectrum of life cycle impacts of a company, product or activity 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.