The Natural Capital Debate: Beyond Economic Growth

  • May 10, 2022

John Forth-Walker 


The claim that corporations and states routinely and knowingly damage the environment for their own economic interests seems fairly uncontroversial. To give just one paradigmatic example, it was revealed in 2015 that Exxon had long been aware of research prophesying the effects of manmade climate change, yet continued its practices of oil and gas production, propelling the unsustainable fossil fuel industry and creating high carbon emissions. To reiterate, this is just one example; similar environmental abuses are ubiquitous. Indeed, much damage is even more direct, through deforestation and ocean pollution. 

The reason for this, simply, is that such practices have been profitable – and, more to the point, would be shown to be profitable under mainstream economic analysis. If a company is making money, it is doing “well”; if a country has high GDP and is growing economically, it is doing “well”. Here I discuss the proposal of factoring natural capital into economic analysis, whereby the natural world – oceans, forests, mountain ranges and glaciers – are regarded as assets, damage to which depreciates their value in the same way a house is devalued by a broken window. Any conclusion drawn will be tentative, but it seems that the concept of natural capital, though practically helpful in many cases, is ultimately insufficient to protect the environment.

The idea is this: if environmental assets are considered in national balance sheets, environmental damage will be disincentivized. The Dasgupta Review advocates this; reporting on the review, Fred Lewsey has observed that currently, the destruction of a forest in favour of a shopping centre would contribute to GDP only the value of the shopping centre, with no deductions made for the environmental damage. (Forests reduce carbon levels in the atmosphere and promote biodiversity, to give two examples of the benefits they confer to us.) 

If, however, the capital value of nature becomes an operative variable in economic analysis, damage to the environment would doubtless decrease. This follows almost with logical certainty; an inclusion of natural capital would surely transform many projects from “profitable” to “loss-making”. Indeed, in The Price of Inequality, Nobel-laureate Joseph Stiglitz recalls that when he suggested employing some sort of “Green GDP” metric, congress members representing coal-extracting states were willing to preclude funding for the research area, while the industry itself responded “with vehemence.” Clearly, the idea of natural capital is anathema to many whose interests lie with the perpetuation of practices such as deforestation and pollution. The current metric of GDP fails to account for environmental damage; using natural capital would incentivize governments to promote more environmentally-friendly projects. Biodiversity and sustainability would likely improve.

But is it enough to merely “improve”? Are such improvements even guaranteed? And, more philosophically, is “capital” even a valid way to categorize features of the natural world? Sadly, it seems that the answers to all three questions render the case for natural capital, at best, incomplete. Contributing to The Guardian, Dominic Rayner observes that natural capital valuations might protect the Amazon rainforest, but areas of local woodland are not so clearly safeguarded, as they’d be given a far lower value. Moreover, Büscher and Fletcher have noted that natural capital valuations paradoxically would lead to destroying in order to protect. By sustainable activity in one area (geographical or economic), unsustainable activity in another would be justified. Of course, one might object that as long as the net result is not negative, these valuations remain either good or benign. To be sure, they are better than many current practices. But they are clearly not iron-clad defenders of nature. 

Moreover, drawing on Piketty’s discussion of foreign assets in Capital in the Twenty-First Century, I would note that entire geographical areas could be destroyed, compensated for by foreign companies or governments employing sustainable measures in their own countries. For the owner-countries, the balance sheets are good; for the owned-countries, nature is decimated. 

A final practical point is that, though conceptualizing natural capital might make for good macroeconomic analysis and evaluation, short-term incentives would remain unchanged. That is, the profit motive for corporations would remain. Monbiot has illustrated this with the example of a developer buying mangrove forests because creating shrimp farms would benefit them, even though what they gain is less than the “natural capital” locals would lose. That is, there’d be a loss in terms of natural capital, but such loss would not touch the developers. Especially in the age of globalization, corporations and governments could either justify destroying one environment by protecting another, or do away with the environment altogether for only self-interested, short-term gains.

Fundamentally, as Monbiot has satirically observed, any valuations of nature would be absurd, abstracted and far-removed from reality to the point of unrecognizability. The value of nature cannot possibly be reduced to quantitative data to be used in economic analysis; the value is simultaneously economic, aesthetic, and worldwide. While attempting such reduction certainly would be beneficial in many areas, it seems not to be the best possible solution to the problems of environmental damage and climate change.