Natural capital is comprised of the natural resources we use and the regulatory ecosystem services that keep the natural world in balance. Yet, the current economic system rewards the short-term production and consumption of goods at the expense of protecting the natural resources essential to human survival. Traditional accounting techniques do not account for the true costs of restoring ecological services that have been lost or degraded.
As a result, ecosystem services are undervalued, which encourages irresponsible and perverse behaviour. Natural capital is depleted as a result of the incentives to manufacture goods and transform ecosystems into built infrastructure. The decline in the quality and quantity of natural capital, which manifests itself as resource scarcity, biodiversity loss, and pollution, will have a significant impact on future economic growth. To ensure a secure future, we must establish economic, social, and governance institutions capable of supporting the rising global population and consumption levels. To address this challenge, it is necessary to factor in the valuation of natural capital into decision-making.
Accounting for natural capital quantifies natural capital stocks and ecosystem service flows in order to evaluate the benefits they provide and determine how to best sustain their use. We can better understand the linkages between economic and environmental variables by combining natural capital accounting with conventional economic accounting.
Defining value
The aim of natural capital valuation is not the reduction of environmental value to narrow economic metrics. A natural capital strategy should consider nature's intrinsic value, even if quantifying it in a meaningful way is challenging. Natural capital assets should neither be undervalued simply because they are unlikely to generate immediate rewards nor should valuation be used to justify the destruction of natural capital for profit.
Environmental economics offers a variety of methods for determining the worth of ecosystem services produced by natural capital, but many of these services lack clearly discernible prices since they are seldom exchanged in markets. Natural capital is valued by assigning it a monetary, biophysical, or sociocultural value in order for governments and the public and private sectors to quantify the economic and social advantages they offer. 'Value' does not refer to an intrinsic attribute of a natural capital asset; it is determined by who measures it, how it is valued in terms of space and time, and who benefits from it.
Different methods measure distinct aspects of value and may not be the same as those employed in conventional accounting, which are based on market prices. Natural capital's moral correctness influences its value when defined ethically. To encompass different value components of environmental services, valuation languages may prioritise economic costs or socio-cultural values. When monetary valuation is irrelevant or unsound, it is preferable to value in biophysical terms or directly in terms of the impact on people. A thorough investigation of the costs and benefits of natural capital is required to select the best valuation tool to aid decision-making.
Mainstreaming the valuation of natural capital
It is vital to quantify the value of natural capital in order to avoid undervaluing it in policy assessments and business decisions. Failing to assign a monetary value to natural capital in ways that policymakers and market players can understand would keep nature at the bottom of their priority list. It is challenging to achieve sustainability through resource efficiency unless value systems are created that, at the very least, attempt to reflect the true value of natural capital.
Economic valuation of natural capital can enhance transparency and fairness in ecosystem use. It can offer crucial data for assessing resource efficiency, even though it falls short of meeting more general social objectives like ecological sustainability or distributive fairness. In the context of spatial planning and infrastructure development, investments in natural capital enhance and often outperform traditional grey infrastructure, which benefits society and the environment. Its limited acceptance is because people are unaware of its real benefits and risks.
A stable and resilient biosphere is essential for both economic development and environmental protection, and preserving natural capital is necessary to ensure that ecosystem services continue to flow in the future. In the fields of agriculture, spatial planning, healthcare, water, energy, etc., an integrated, multi-dimensional valuation strategy integrating numerous valuation approaches, both monetary and non-monetary, is necessary to successfully integrate ecosystem services into the policymaking process. Making conservation appealing to stakeholders requires a sustainable market that both reward investors financially while also providing measurable conservation benefits.
(Ann Rochyne Thomas is a cross-disciplinary biologist and ecological spatial planner. She is the founder of the Centre for Climate Resilience - a sustainability and climate change advisory.)
