What is natural capital?

How did we get here?

How did this excess CO₂ and resultant planet warming happen? Simply put, there was no cost or penalty for burning fossil fuel. So, we have burned fossil fuel as fast as we could to make our lives more comfortable, with no apparent consequence (until now).

Broaden this concept to consider not just burning fossil fuel, but all the actions of humans to produce commodities for consumption by other humans.

Almost all of these actions exploit naturally occurring features or services to produce something humans want. And with very little exception, nobody is paying the bill (yet).

How big is the bill?

In 2014, Costanza et al. estimated the total value of the world’s ecosystem services at US$125 trillion per year (In 2007 dollars). That is, the value provided for free (or exploited at zero cost depending on your perspective) by ecosystem services is a pretty big number.

This happy situation only really matters when those ecosystem services stop delivering. In that same paper cited above, Costanza et al. estimated that there has been a loss of ecosystem services for the period 1997-2011 due to land use change of US$4.3-20.2 trillion per year. For context Australia’s GDP in 2007 was US$855 billion.

How do we account for and report natural capital?

Acknowledging the need to account for the consumption of natural assets is only the first step. The tricky bit is how to account for it so that we can make sure the bill gets paid. There are several international accounting and reporting frameworks working toward this goal. The current leaders are:

• The Kunming-Montreal Global Diversity Framework (GBF 2023) adopted during the COP 15 in Montreal. This framework sets out a pathway for a world living in harmony with nature by 2050 and sets out 23 targets for 2030, one of which aims to halt biodiversity loss.
• The Taskforce for Nature Related Financial Disclosures (TNFD) released its final framework in 2023 (TNFD 2023). The TNFD provides a risk management framework to identify, assess, manage and report on nature related dependencies, impacts, risks and opportunities. This framework encourages organisations to integrate nature into strategic and capital allocation decision making, and is structured similarly to the Task force on Climate related Financial Disclosures (TCFD 2017) – the basis for carbon accounting.
• The 17 global Sustainable Development Goals (SDGs) (UN 2015) which include several that directly focus on environmental outcomes.

These international frameworks present high-level outcome measures and divest the responsibility of determining local industry level measures to inform those outcomes to those doing the reporting.

So, what is natural capital again?

This brings us back to the question of what natural capital is and how we quantify it in a tractable way.

Looking back at the base definition, natural capital is the catch-all phrase that captures all of those intangibles that are not being accounted for yet are being consumed or harmed in the pursuit of human happiness.

That is a bit slippery, so let’s use the World Forum on Natural Capital 2017 definition:

“Natural capital is the stock of natural assets including geology, soil, water, land, air, and all living things.” They add the caveat, “It is from this natural capital that humans derive a wide range of services, often called ecosystem services, which makes human life possible.”

We have combined this into a single anthropocentric focused sentence: “Natural capital is the stock of natural assets including soil, water, land, air, and all living things from which we derive environmental, economic, social and cultural value”.

Now, what do we do with it?

Truii has developed Natural Capital Suite, a collection of web applications to support accounting for and improving natural capital. In doing so, we have developed tractable measures to quantify natural capital.

Our measures are limited to first order responses to the natural environment (direct benefits of ecosystem services).

Based on a review of the international reporting frameworks, and regional scale natural resource management plans, there are common priority outcome areas. We have adopted four high-level outcome areas (Environment, Social, Governance, Productivity) with indicators and measures to support each outcome.

The underlying measures for each indicator may vary according to need (indicative measures included below):

1. Environment
   • Water (including water quality)
     • Nitrogen
     • Sediment
   • Biodiversity
     • Habitat condition
     • Threatened species
   • Soil
     • Soil health
     • Erosion
   • Climate
     • C0₂
     • Methane
2. Social
   • Equality
     • Employment diversity
     • Pay equity
   • First Nations
     • Participation
     • On-country values
   • Economic
     • Local economy
     • Industry economy
3. Governance
   • Accountability and transparency
     • Accountability
     • Transparency
4. Productivity
   • Profitability
     • Optimised soil health
   • Resilience
     • Improved soil stability
   • Reputation
     • Community standing
     • Industry standing

Underlying indicators and measures are aggregated to report on the four high-level outcome areas. This allows an ESGP reporting framework compliant with international frameworks and allows drilling down to individual indicators and measures (Figure 1, 2).