The elements of Natural Capital interact to supply humans and other species with the natural goods and services that are diverse and planet-wide. Today, many natural resources on which society and business are dependent are being lost at an unprecedented rate and the combined effects of ecological degradation and population growth will only accelerate the dependence on natural resources globally (KPMG, 2013).

Unfortunately, however, at present, decision makers along with a number of other stakeholders have underestimated the real value of these commodities nature has provided us for free. Natural systems are extremely fragile and we are presently overusing many of our natural assets without considering or being pro-active about their preservation. Considerable natural capital resources have and are being diminished and depleted all over the planet. Fish stocks are being depleted due to overfishing affecting present and future harvests. Trees in rainforests are being cut down at a faster rate than they are being regrown. Etc.

A healthy natural environment is an integral part of our daily lives, but also both in the more ample sense and long term of our world economy. We need a healthy environment for our well-being but also to ensure the functioning of our economies and businesses. All businesses in the world impact and rely on nature. The degradation of our ecosystems present a true risk for companies in the present time and future. Moreover it is easy to take for granted both nature and the benefits it provides. Taking nature for granted is presently proving costly and will undoubtedly continue to be so in both the short and long term future. Businesses therefore have to secure natural resources costs and this will in turn save on future costs and manage future risks. In this way both the environment and world economy will mutually benefit.

A PLURALISTIC APPROACH TO ECOSYSTEM ASSESSMENT

It is not possible, given available data and knowledge about limits and thresholds, to identify with certainty the natural capital assets that are being used (un)sustainably. An assessment of the risks of unsustainable use would provide management information and help priorities action to mitigate against it

In “A Pluralistic Approach to Ecosystem Assessment and Evaluation”, R. K. Turner, a Professorial Fellow at the School of Environmental Sciences at University of East Anglia, explains that the maintenance of natural assets is necessary to reach for the policy goal of sustainable development. Ecosystems must be preserved and cultivated for the attainment of social and economic well-being in the long run. The ecosystem services methodology proposes a strategy for analysing and valuing the flow and changes in flow of natural services over time.

The 2005 Millennium Ecosystem Assessment presents a preliminary approach for researching and understanding natural capital. Its objective is to assess; (1) the consequences of ecosystem change for human well-being and (2) the scientific basis for action needed to enhance the conservation and sustainable use of those systems (Millennium Ecosystem Assessement, 2005). The approach presented outlines an economic methodology for determining the monetary valuation of ecosystem services. Moreover, there are some services that cannot be expressed meaningfully in monetary terms such as cultural issues. A more pluralistic perspective is therefore necessary for evaluation purposes.

A number of aspects are increasing the likelihood of Natural Capital to be used when evaluating ecosystem services and externalities. Thus there remains however a number of technical challenges associated to applying economic valuation within an ecosystem accounting or wealth accounting context.

The links between ecosystem valuation and wealth accounting (within which ecosystems accounting is also a new area) are still to be made. Natural capital is enormously important to the economy and yet it is largely omitted from national economic indicators as well as from most corporate and government policy decisions (Natural Capital Committee, 2013). The consequence is that resources are not being allocated efficiently within the economy and opportunities for significant gains in wellbeing and future growth are being lost.

Policy makers require better decision support tools to help them incorporate natural capital valuations into policy analysis. Improved use of existing data and analytic approaches would significantly enhance appraisal processes and increase the value for money provided by investments.

For consistency and to avoid double counting there is a need for an adequate accountancy framework. This needs to clearly distinguish between intermediate, final ecosystem services and goods/services valued by people and also needs to link all of these to underlying, measurable stocks and quality of natural capital. It is necessary to choose an appropriate methodological framework for Natural Capital valuation. Decisions need to be taken on whether to use demand-based approaches looking at actual markets, cost-based approaches (e.g., costs of replacement) or a pragmatic mix of both.

Overall, developments in the application of economic valuation techniques for ecosystem services are encouraging in terms of the application of valuation within a wealth accounting framework.


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