What is Natural Capital?

• Natural capital can be defined as the world’s stocks of natural assets which include geology, soil, air, water and all living things.
• Critical natural capital (CNC) is defined as that part of the natural environment, which performs important and irreplaceable functions.
India’s Natural Capital
• India boasts 11% of the world’s floral and faunal species, India is one of the 17 most ecologically diverse countries. The financial value of India’s forests is estimated to be $1.7 trillion.

Significance of natural capital

• Ecosystem service: Humans derive a wide range of services, often called ecosystem services, from natural capital to make human life possible like fresh air, water, food, etc.
• Immaterial And Intangible Nature: They provide many, socio–economic benefits, which might be assessed through both qualitative and quantitative valuation methodologies.
• Balancing nature: They capture and store great amount of carbon through carbon sequestration to maintain the composition of atmosphere.
• Economic contribution: They provide employment and are used as a raw material in many economic activities around.
• Asset to countries: Natural capital is a critical asset, especially for developing countries where it makes up a significant share (36%) of total wealth.

Natural capital at risk

• Affecting humanity: With increasing economic activity, natural capital assets are on the decline, directly affecting the quality of life and potentially giving rise to future inefficiencies in the economy.
• Ignoring or Undervaluing Natural Capital: This is leading to execution of projects with far higher negative externalities compared to the benefits.
• Financial impact: Unsustainable use of Natural capital leading to phenomena such as water scarcity etc. is directly linked to lower profitability of an economy. Indirect effects can include social pressure that prompts changes in demand and regulation and generates socio-economic unrest due to resource
crunch.
• Depleting planetary boundaries: This means that human activity has altered the balance of a few delicate equilibriums, the effects of which are reflected by changing weather patterns, accelerated extinction events for both flora and fauna, and global warming.

Way Forward

• Accounting intangible nature of natural assets: Making natural capital thinking a norm through policy push and the adoption of valuation frameworks such as the Natural Capital Protocol (Protocol provides a standardised framework for organisations to identify, measure and value their direct and indirect
impacts and dependencies on natural capital).
• Factoring natural capital in the economic, social, cultural and spiritual value of ecosystem services in the calculation of true economic growth and development.
• Risk Management to Include Natural Capital: For a comprehensive evaluation system that takes undesirable side-effects of economic activities into account.
• Maximizing Profit: Proper valuation of natural capital has the potential to optimise resources and thus maximise the net benefits of economic growth and development
• Integrating natural capital assessment and valuation into our economic system is critical to usher in a truly sustainable future for India.