We know about capital….
‘His whole stock is distinguished into two parts,’ wrote Adam Smith, the Father of Capitalism, 245 years ago. ‘That part which, he expects, is to afford him revenue, is called his capital. The other supplies his immediate consumption, as it gradually comes in’.
Smith went on: ’As every individual endeavours to employ his capital, every individual is led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.’
…but what about natural capital?
When populations are low, the revenue is there for the taking. But as populations grow, we hit natural capital barriers. It seems likely that the invention of farming was partly driven by hungry people outcompeted by higherstatus hunter-gatherers. Their innovation has enabled population to keep growing to this day. Humanity has taken food production seriously, and cracked it — although we know that if climate change, phosphate shortage or pollinator extinction were to devastate Earth’s food-growing capacity, it would be a fundamental catastrophe.
Our more recent history shows food is not the only resource we cannot take for granted. In late Medieval Britain, deforestation resulted in a long fuel crisis which checked prosperity until large-scale use of coal enabled population growth and urbanisation. The super-insulated turf houses of Iceland were invented because wood for building and heating was quickly used up by the original settlers. The Rapa Nui lost their seafaring culture once there were no more trees on Easter Island to build boats. The East India Company instigated forest protection in St Helena when the water supply which underpinned their business plan was in jeopardy. Shortage results in adaptation, innovation, or disaster.
So far we have been considering biological natural capital. Yet in our modern world, it is another form we are squandering most disastrously. Food can be farmed, forests harvested sustainably: we can see how to spend the revenue and invest in the capital. Yet with minerals like coal, oil, phosphates, sand, iron ore, we have only capital. Abundant, but not infinite, we have been splashing capital about with disastrous consequences: climate change, pollution, and habitat destruction.
Investing in natural capital
This is where natural capital meets and interacts with three other concepts: ecosystem services, circular economy, and regenerative farming and forestry.
Ecosystem services are the revenue of natural capital. Not just food, clothes, houses and transport, but those we take for granted: stable climate, breathable air, drinkable water, medicines, mental wellbeing. Yet now that our wasteful use of natural capital is putting these under threat, we need to include them in our calculations.
Circular Economy is not about recycling, but about production. Economic activity to meet our needs has historically been as linear as a dormouse taking a hazelnut from a tree, eating it, and dropping the shell. This works in a balanced ecosystem, but we have too many humans on the planet, and have delved too deep into its resources, for nature to pick up the rest of the cycle. Instead of nutshells, we have climate change, oceans of plastic, nitrate pollution, rivers destroyed for sand mines. Circular economy is taking responsibility for the whole cycle: ensuring that what we produce is renewable, regenerative, and reusable. It means using our mineral resources so wisely that they are a closed loop — without extraction or pollution. It means new inputs (such as food and timber) are from systems which are not just sustainable, but regenerative — restoring ecosystems damaged over millennia. Economy has caused environmental destruction; but circular economy would restore Adam Smith’s benevolent ‘invisible hand’, driving ecological restoration.
This is where you come in, and why we are hearing more and more about our third concept: regenerative agriculture — we must also include regenerative forestry. Managed land, producing and restoring simultaneously, is the engine of circular economy.
Where is it leading?
Are all these proliferating concepts passing fashions? I don’t think so. They are part of a fast-developing, interconnected theory of how we can supply our needs while reversing environmental destruction, at the end of a trend which we can trace back throughout human history. Fans of Adam Smith were shocked when, fifty years later, industrial revolution had created smoke, exploitation and misery. His ‘invisible hand’ got a bad name; but consumers, industrialists, and governments developed regulations on food standards, child labour, health and safety, air quality, and much more which we now take for granted. Faced with ecological disaster, we have the same imperative to constrain our market, and channel it into restoration.
The practices for delivering this shift — from cover crops to carbon credits — are evolving even faster than the concepts. In the real world of emerging business, marketing is allimportant, but greenwash is a real danger. The carbon price is likely to soar, but it could also bubble. We need to ‘think global and act local’, understand the big picture as we apply concepts like NatCap valuations, biodiversity offsets, charismatic carbon, and rewilding. Amongst the storm of buzz-words, messy growth and heated debate, we need to navigate the current of taking responsibility for the whole cycle. It starts on the land.
Galbraith have been helping farmers, woodland and landowners manage their land for decades, managing Natural Capital is not new to us, it is what we have been doing for years. There is a new language alongside new constraints and new opportunities; our team of specialists in the field of Natural Capital is ready to help you steer a steady path through the options opening up along the route to net-zero.