Nature's economic support services

30th July 2015


Mark Everard reviews UK initiatives to better account for natural capital.

Societies in the developed world remain as dependent on nature as the agricultural communities did in the past but there has been a tendency to become detached from it by technology, trade and economic leverage.

Consequently, governance and market models have become dissociated from nature’s stocks and flows. We sporadically confront the need – through resource scarcities and pollution incidents, for example – to place aspects of nature’s supportive capacities into the market model to drive political and business decisions. These can range from reactions to depleted fish stocks and climatic instability, air and water pollution, and ozone layer damage. The integration of economic factors with social and environmental ones is recognised in the concept of sustainable development, while the role ecosystem goods and services play in sustaining human wellbeing has led to natural systems being assigned economic significance.

Today the term natural capital is finding favour and work has been continuing in the UK to find ways to better account for the value of the services nature provides to sustain wellbeing and the economy.

Capital asset check

The 2011 national ecosystem assessment (NEA) incorporated significant research to improve economic appraisal of natural capital in the UK and to integrate it with mainstream economic systems. It included further development of the natural capital asset check (NCAC) tool, posing three questions to be addressed through five steps:

Q1: Extent – How much of the natural capital asset do we have?

  • Step 1 defines it as based on the goods and services it produces.
  • Step 2 considers its integrity, defined by extent and condition.

Q2: Productivity – What does the natural capital asset produce?

  • Step 3 assesses how the integrity of the natural capital influences the goods and services it produces, including thresholds and the consequences of crossing them.

Q3: Trend – How do our decisions affect the extent and productivity of the natural capital over time?

  • Step 4 considers the increase or decrease of the asset over time, taking account of available data on thresholds.
  • Step 5 combines these questions to determine whether natural capital is being managed in a way that poses risks by crossing thresholds.

A pasture is an example of a definable asset (extent) supporting an economically important head of milk-producing cattle (productivity), but declining sward health (trend) may jeopardise dairy yield (future productivity).

Determining thresholds

NEA research that tested the NCAC considered nine case studies, including lakes and reservoirs, fish stocks, and bees and other pollinators. The lakes and reservoirs study used data from national and river basin district scales, supported by more detailed information from individual sites, to examine consequences for several ecosystem services.

Assessment of trends in natural capital is important in the NCAC to identify thresholds or trade-offs in their relationships with benefits for society. Nutrient concentration thresholds for different services were identified in the rivers and lakes case study. For conservation of species and ecosystems adapted to low-nutrient conditions, slight enrichment can damage system integrity, function and production of valued services, with some nutrient limits already defined through conservation targets – though there remain major knowledge gaps.

By contrast, recreational uses of rivers and lakes are compromised at two higher thresholds as nutrient concentrations trigger algal blooms. These may reduce user enjoyment and, at increasing concentrations, create health risks for animals, including humans. Similar multi-threshold principles apply to marine fisheries, forests, coral reefs, urban green spaces
and other natural assets.

Building thresholds into economic thinking and decision-making becomes vital for sustainable management. Under the NCAC, productive natural assets approaching a threshold are signalled by a red flag, comparable to how shortfalls in skills and investment in research and development by businesses already trigger early warning alerts in established economic systems.

As NCACs are inevitably limited by shortfalls in data and knowledge about thresholds, estimates are based on a simple model in which productivity of natural capital is assumed to decline as it becomes more fragile. A red flag warning zone is set at the point at which non-linear reductions in productivity are considered likely, and beyond which potential restoration is compromised (see diagram below).

Productivity and integrity of natural capital

The devil, as ever, is in the detail. Data gaps remain a problem. The rivers and lakes case study highlights the need to integrate datasets. Significant unknowns include assumptions about relationships between productivity and integrity. The points at which thresholds occur with respect to multiple ecosystem services are also rarely known, as is the realistic potential for restoration of ecosystems honed over time.

The need to consider all ecosystem services as a connected system, a fundamental principle of systems thinking, introduces further complexity and uncertainties. Although knowledge of thresholds in some systems is excellent, such as calculation of maximum sustainable yield (MSY) in forestry, knowledge about production of a broader range of ecosystem services is less developed. Neither is there enough understanding of which natural capital assets produce which services, and how the balance of services produced varies with asset condition.

This is all vital information if we are to avoid compromising the quality and productivity of the natural capital that sustains human wellbeing.

The NCAC is a work in progress. Nonetheless, it represents a flexible tool applicable at multiple scales. It may assess a specific habitat or other asset, such as a fishery or soil, the state of a particular ecosystem service, such as pollination, which constituted an NEA case study, or how a subset of ecosystem services is produced from a selected habitat.

Data intensity and associated analytical uncertainties increase across scales, the biggest inherent risk being accounting for trade-offs between interconnected services. However, the NCAC articulates aspects of how natural productivity and ecosystem integrity generate economic goods and services. In so doing it provides important information that may, in time, enable the progressive integration of fundamentally important natural capital and its associated red flags into national accounts.

Capital accounting

The Natural Capital Committee (NCC) was established in 2012 as an independent body on a three-year term to advise the government how to ensure efficient and sustainable management of England’s natural wealth. It applied modified applications of the NCAC, seeking to incorporate natural capital into national accounts and developing a new corporate natural capital accounting (CNCA) framework. This has been piloted by several organisations, including LaFarge Tarmac, United Utilities, the National Trust and The Crown Estate, to accompany traditional financial accounts. The framework helps organisations to address:

  • which natural capital assets are of utmost importance;
  • how much of the value of the business relies on natural capital;
  • how this reliance may change in future; and
  • how much it needs to spend to maintain the natural capital it uses.

The NCC’s third report, Protecting and improving natural capital for prosperity and wellbeing, was published in early 2015. It recognises that “natural capital deficits” built up over the long term are proving costly to the wellbeing of society as well as the economy, and must be halted or reversed to sustain economic growth. It also expresses optimism that “significant improvements are possible with the right investments and these will open up a range of economic opportunities for enhancing quality of life for current and future generations”.

The report sets out a strategy requiring a 25-year plan from the government, which consists of building blocks (measurement, accounting and valuation), investment (creation and restoration of several optimally located habitat types) and financing.

Changing the ‘real’ world

How can natural capital accounting help support tough decisions in the highly contested “real world”? For example, what values do London’s green belt provide, and can the net benefits of its ecosystem services be retained or even enhanced if it is used to meet the demands for new housing?

The national planning policy framework (NPPF) set out what would constitute appropriate development, stating five purposes for the green belt: check unrestricted urban sprawl; prevent neighbouring towns merging; safeguard the countryside from encroachment; preserve the character of historic towns; and assist urban regeneration through recycling derelict land.

Presumptions about protection of greenfield sites with redevelopment of brownfield could benefit from fresh scrutiny of natural capital. What ecosystem services do greenfield sites provide? Are these greater than those provided by brownfield locations? Are brownfield sites more biodiverse and accessible? Do they perform more significant flood and air quality regulatory services than green fields simplified by drainage and monoculture? What innovative infrastructure, following “green infrastructure” concepts, can work with and perhaps even enhance natural capital and its contribution to societal value?

These are pertinent questions for local authorities under pressure to explain why undeveloped land is valuable, while seeking a sustainable basis to accommodate required development. Reframing arguments for and against development and shaping appropriate forms of development on the basis of how ecosystems and their functions provide valuable services may be more constructive than the established “preservationist” model.

By whatever terms we refer to it, and despite emerging awareness of the need to internalise more of its values into an economic system founded substantially on its liquidation, we have yet to integrate natural capital substantially into mainstream political and business decision-making. However, emerging tools support its progressive inclusion, a process we must accelerate to address escalating sustainability pressures.

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