Glossary entry

Natural Capital

Definitions

Option 1

Natural Capital  means the elements of the natural environment [relevant to the Company/ Project/ Property] that provide valuable goods and services to [the Company/ Project/ residents/ community].

Option 2 - Natural Capital Asset

Natural Capital Asset means an individual or set of elements of the natural environment that provides valuable goods and services to [the Company/ Project/ Property]. [The relevant assets are listed in Annex [  ][, which will be updated [every year/ from time to time].]

Option 3 - Natural Capital Valuation

Natural Capital Valuation means [insert method of valuation] used to measure the benefits derived from [Natural Capital/ Natural Capital Asset] relevant to [the Company/ Project/ Property].

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Drafting notes

What is natural capital?

In general, natural capital refers to the world’s stock of natural assets, which either:

  • directly provide goods and services to humans; or
  • indirectly support the wider economy and society.

Natural capital is one of the five types of capital:

  1. natural capital;
  2. manufactured capital (e.g. machinery and buildings);
  3. financial capital (e.g. shares and banknotes);
  4. human capital (e.g. knowledge and skills); and
  5. social capital (e.g. levels of trust and connections among people).

Natural capital can be renewable or non-renewable, living or non-living. It includes assets that have a market value (for example, timber) and assets that don’t (for example, outdoor recreation). Examples of assets include plants, animals, soil, air, water, geology and minerals.

A contract definition of natural capital may be tailored to refer to specific natural assets of that benefit the company, project or property.

Natural capital valuation

Assessing the value of changes in our natural capital and the services it provides is fundamental to deciding how and where funds should be spent to restore, maintain and manage the natural environment. The value of natural capital benefits are often overlooked in decision making because of a lack of meaningful or observable prices.

The UK’s Natural Capital Committee identified three general decision contexts for which information on the value of natural capital and its services is useful. The three contexts are determining:

  • priorities for investments in natural capital;
  • actions affecting natural capital to:
    • achieve target improvements;
    • avoid deterioration; or
    • compensate for losses; and
  • overall progress with objectives to protect and improve natural capital (including at the aggregate level).

Metrics

There is no metric for measuring stocks of natural capital so valuation methods focus instead on measuring the direct and indirect benefits derived from natural capital. The approach to valuation depends on the relevant context.

In the UK and New Zealand, satellite accounts are used to showcase the accounting value of sectors such as forests, fisheries and groundwater. For example, the accounting value of a fishery can be estimated by the market value of catch over time.

If each type of natural capital asset requires a different method of valuation, the methods can be:

  • listed in the annex with the relevant natural capital assets; and
  • referred to in the definition.

Application

Supply chain clauses, government guidance, national climate laws, real estate contracts (leasing arrangements – repairs, alterations, yielding up and decoration covenants). This definition can also be used in the context of corporate social responsibility/ ESG benchmarking, where companies are:

  • considering their impacts and dependencies on natural capital as part of their strategic and operational decision-making (see National Capital Protocol).
  • highlighting the importance of natural capital and promoting their sustainable use when conducting everyday business.