What is Natural Capital?

Natural capital refers to all biotic (living) and abiotic (non-living) natural resources, or ‘assets’ that provide products and services that are of value to humans and society. Natural capital is sometimes referred to as ‘stocks’ to describe the role of nature within the economy.

Biotic natural resources are those derived from living organisms, such as plants, animals, fungi, bacteria and viruses.

Abiotic natural resources are those derived from non-living sources and include geological resources (minerals, soil, fossil fuels), water and physical processes such as solar radiation, wind and tides.

Chapter 01

Natural Capital Assets

What are natural capital assets?

Natural capital assets are the tangible natural resources (both biotic and abiotic) that provide products and generate ecosystem services that are of value to society. Natural capital assets can be defined by their extent (e.g., area, volume, length) and condition (e.g., quality, density, diversity).

There are two types of natural capital assets: environmental assets and ecosystem assets.

Environmental assets

Environmental assets are the individual components in nature. This includes both biotic and abiotic natural resources which contribute to an ecosystem's biological diversity and vitality. They provide the foundational physical and chemical components necessary for ecosystem functioning.

Example: Individual plant or animal species (biotic) and water, minerals, and soil (abiotic)

Ecosystem assets

Ecosystem assets are formed through the combination of many individual environmental assets. Abiotic factors like climate and geology interact with biotic factors such as plants and animals to shape ecosystems and influence their extent and condition. The properties of ecosystem assets, such as species composition, function and form, result from these interactions, and give ecosystems their unique characteristics that determine the services and products that flow from them. They are called “assets” because they are the source for ecosystem services that support well‐being, health, and security.

Example: grasslands, forests, woodlands, wetlands, mangroves, and peatlands

There are three categories of natural capital assets.

Natural capital assets encompass all elements of nature that provide value, including both ecosystem services and resources. Natural capital assets can be defined by their usability for humans.

Renewable

Inexhaustible - Physical resources that are restored by natural processes at a rate equal to or faster than they are used.

Example: solar radiation, wind, tidal energy, water flow, geothermal energy

Exhaustible - Biological resources that, if harvested slower than or equal to the rate at which they are replenished by natural processes, can be harvested sustainably in perpetuity. If biotic resources are harvested faster than they are replaced by natural processes, they become exhaustible (unsustainable).

Example: timber, kelp, fisheries, game species

Recoverable - Renewable resources that are replenished by natural processes on longer time scales (decades to centuries).

Example: guano, groundwater, soil fertility

Cultivated

Ecosystems that are maintained by human intervention but depend on the underlying environmental assets.

Example: agricultural systems, plantations, urban green spaces

Non-renewable

Non-renewable resources are finite and irreplaceable or those that can only be replaced over geological timescales.

Example: coal, iron ore, natural gas, lithium

Key insights about natural capital assets

Q1Which of the following is a non-renewable asset?

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Chapter 02

Flows of Services

What are the benefits that flow from natural capital assets?

Natural capital assets produce flows of services that have value to businesses and society. There can be of two types:

Abiotic Services

Abiotic services are benefits that arise from abiotic natural resources and physical processes, including fundamental geological processes, solar radiation and the Earth’s rotation and gravitational pull.

Example: the supply of minerals (including metals) and fossil fuels, as well as geothermal heat, wind, tides, sunlight and hydro-power

Ecosystem Services

Ecosystem services are a key concept in natural capital. Ecosystem services are products or processes generated by ecosystems that have value to society. They can be raw materials or products extracted directly from ecosystem assets or the outcome of ecological processes that generate a resource or service.

Example: the provision of food, raw materials like timber and fibre, medicinal resources, climate regulation, water purification, pollination, flood control, nutrient cycling, photosynthesis, habitat provision, recreational and tourism opportunities, and spiritual and aesthetic values

The four categories of ecosystem services.

Supporting services

Supporting services support all other ecosystem services. They are the underlying natural processes that enable ecosystems to function, and to produce all other ecosystem services.

Example: photosynthesis, nutrient cycling, soil formation, and water cycling

Regulating services

These are the services produced as a by-product of ecosystem processes. They do not produce a tangible product directly but they moderate natural phenomena that support life or facilitate provisioning services that produce products.

Example: climate regulation, flood mitigation, erosion control, water purification and pollination

Provisioning services

These are any type of tangible material or product extracted from natural capital that benefits people.

Example: all food, raw materials (timber, minerals, gas, oil), fibres (wool, cotton, hemp), medicines, drinking water

Cultural services

These are non-material benefits that contribute to the cultural and spiritual advancement of people.

Example: recreational services and tourism, mental and physical health and well-being that comes from connecting with nature, creative inspiration, enjoying beautiful scenery, spiritual renewal

Climate & Biodiversity

Understanding the relationship between natural capital, climate and biodiversity

Climate & Biodiversity

Assets flow into services.

Hover on the different elements to see how natural capital assets produce flows of services.

Natural Capital Assets
Environmental
Ecosystem
Ecosystem
Abiotic
Flow of services

Key insights about flows of services

Q1The relationship between supporting services and other ecosystem services can be described as:

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Chapter 03

Dependencies and Impacts

How do businesses impact and depend on natural capital?

All businesses have natural capital dependencies and impacts.

Dependencies

A dependency is a reliance on or use of a natural capital asset or ecosystem service to conduct business operations.

Example: a company may be dependent on extracting a non-renewable resource (e.g., mining of coal), harnessing a renewable resource (e.g., water flow to generate electricity), or harvesting a biotic resource (e.g., fisheries) to generate income

Impacts

Impacts are changes in the extent or condition of a natural capital asset or ecosystem service resulting from a business's activities.

Impacts may be:

  • Positive: an improvement in condition and/or increase in the extent of a natural capital asset
  • Negative: a deterioration in condition and/or decrease in the extent of a natural capital asset

There are three categories of impacts.

Direct

This refers to the direct result of a company’s actions and operations without intermediaries or secondary pathways, such as direct pollution, habitat destruction, resource extraction, and land use change.

Example: the release of waste into waterways negatively impacts water quality, reforestation of land to generate carbon credits

Indirect

Indirect impacts are the unintended or secondary consequences of business activities, such as: financially supporting others that directly impact natural capital; downstream and upstream supply chain impacts; perverse consequences of policy that influence natural capital; and investment and infrastructure decisions with natural capital implications.

Example:
A bank that provides a financial loan to a company that is clearing native forests for grazing land.

Residential development that leads to changes in the condition of adjacent native vegetation.

Lower insurance premiums or higher land valuations for cleared farmlands.

Cumulative

Cumulative impacts are the gradual, incremental effects of multiple organisations, activities, operations, or decisions over time that alter natural capital assets and ecosystem services. These often relate to climate change, habitat fragmentation, unsustainable water use, and land degradation, and result from ongoing contributions rather than isolated events.

Example:
While the carbon emissions of an individual company may be small, the cumulative emissions of many companies are fueling climate change.

The habitat loss from one residential development may be small, but the combined impacts of many such developments leads to significant land use change and habitat fragmentation.

A company can measure and track their dependency and impact on natural capital by using natural capital assessment or natural capital accounting.

See the resources section for more information on these tools.

Key insights about dependencies and impacts

Q1A company that extracts iron ore from the ground has a direct dependency on what type of resources?

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Download Key Concepts

If you prefer learning from PDF or print formats, where you can annotate and take notes, you can download the PDF below. It includes all the theoretical principles of natural capital.

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Learn more about dependencies and impacts in the industry use cases chapter.

Industry Use Cases