[origionally posted as class assignment]
Response to “A Roadmap to Natural Capitalism”; What are natural capital and eco-system services, and why are they important for both business and the planet?

Natural capital is a way to express the productive value of ecosystem services, much like financial capital expresses the productive value of monetary assets. Ecosystem services are the basic biological functions that supply resources in the form of materials and energy, and provide a sink for wastes of various kinds.

Like financial capital, natural capital can be spent, conserved, or accumulated. Consider a five acre farm field, growing vegetables. We can view the ability of the land to support the crops as the natural capital inherent in the land, much as we view the ability of a tractor to support the farming operations as a form of fiscal capital. The productive ability of the field depends on both inputs.

Now, when we eat a carrot, are we extracting capital? Perhaps. We can farm in such a way that next year the field will not produce as many carrots. If we don’t replenish the soil with organic material, it will be a tad bit more tired. If we don’t rotate crops, the pests, accustomed to the same crops in the same places, will be a bit more bothersome. In this case, yes, that carrot represents a bit of spent natural capital.

On the other hand, we can farm in such a way as to leave the soil as productive next year as it was this year. We apply compost, we treat the soil with care as we plant and plow. Crops are rotated, and some land is always under cover. In this case, the carrot does not represent capital expenditures. It represents the use of the productive power of the natural capital.

How does the concept of ecosystem services tie in? Think of it this way. The land, the soil is not a thing – not simply a pile of dirt, or a place to walk – but a system. The soil is a complex system that cycles nutrients, manages moisture and water flow, builds up and builds up and breaks down stocks of organic and inorganic materials, and hosts whole communities of living organisms that both use and facilitate these processes. Any combination of these processes can be tapped into to do something useful for us.

We generally aren’t too specific or clear in our thinking about these services. We say we use the soil to “grow things”, and, unless we are a farmer, don’t think of which of the suite of the services provided by the soil-as-system we are making use of.
Natural capital then, is the productive capacity of ecosystem services. This is essential – capital is not inherent in the thing, but in the usable excess productive capacity generated by the system. This is perhaps counterintuitive, but, it is true of financial capital as well. The capital value of dollars in the bank is nil. The value of these dollars is in their power to increase productive capacity through the purchase of equipment that increases production efficiency.

The notion of natural capital is essential to a sustainable business model as the concept of natural capital changes the costs associated with natural resource use from production costs to capital costs.

Any business is loath to spend capital – it is suicide. This is especially clear when we view capital not as a thing, but as productive capacity. Give away enough productive capacity and you are done. So, a tight lid is kept on capital expenditures, and capital is always expended with an eye towards increasing productivity enough to recoup the capital, with some extra in the form of profit.

So, by putting casting resource costs as capital costs, the idea of natural capital brings the power of business to bear on the issues involved in preserving ecosystem services. This is essential to business, in that it prevents them from consuming their resource base. It is essential to the planet for the very same reasons.