What is Natural Capital?

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  • Written By: Jessica Hobby
  • Edited By: Heather Bailey
  • Last Modified Date: 12 May 2020
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Within the structure of capitalism, capital is the manufactured means of production. On a broad level, natural capital includes means of production that come naturally from the earth. Plants, animals, soil, minerals, water and air are examples. In an age where sustainability and preserving the environment are important global issues, a full understanding of natural capital requires an explanation of its role as critical capital and a division of renewable and nonrenewable capital.

Critical natural capital refers to capital harvested from the natural environment that is necessary for life to persist. Sustainability becomes the primary concern when natural means of production are used in a business. When depletion or overuse of natural sources of capital occurs or nearly occurs, essential life support systems and ecosystem functions may be put in danger. An awareness of the level of sustainability of different sources for capital in the environment leads to the division of renewable natural capital and nonrenewable natural capital.

Renewable natural capital can be described as capital that provides a continuous flow of goods and services. For example, when a forest is harvested, its trees may be used to produce paper, housing or a variety of other wood products. The trees can be replanted or the same land may be used as a park or as a building location for businesses and residences. It is important to note that if the rate of usage is greater than the rate of replenishment, sustainability will not be achieved and depletion is likely.

In contrast to renewable capital, nonrenewable natural capital is extracted without a continued flow of goods and services. Fossil fuels and minerals are the most common examples of this type of non-renewable capital. For example, when crude oil is harvested from the earth, it is used to make products such as gasoline and other petroleum-based products. These products are consumed and there is no way to replenish or continue using crude oil.

Scientific awareness of the affects of usage of renewable and nonrenewable resources coupled with a desire for sustainability has caused the emergence of bioeconomics, also called environmental economics. Bioeconomics focuses on studying how much natural capital is necessary to sustain a particular standard of living. Additionally, bioeconomists focus on ways which human-made capital can substitute for natural capital in an effort to replace depleted natural resources and conserve the environment.

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