Natural Capitalism: Good Business Meets Good Karma
How blending economics and environmental science can help to bridge the partisan divide and secure a prosperous future
Why do you have to choose between growing a business and combating climate change? And why is that question so… political?
Spoiler: you don’t have to choose, and it isn’t political. Capitalism doesn’t need to conflict with sustainability, and the solution can’t just come from legislation.
It’ll happen through a smart new system of accounting, a grand market shift, and some good old-fashioned American innovation.
The Problem
Something is rotten in the state of American environmentalism. After more than a hundred years of turmoil, the movement has found itself in a financially precarious position. Private-sector environmentalism is exclusive, offers less economic opportunity than other industries, and is scale-limited. Federal regulations, which often lack the nimbleness and nuance of market-based solutions, take decades to establish and a single election to gut.
There’s a reason why private-sector conservation organizations are overwhelmingly white, wealthy, and liberal. Environmental advocacy work is often volunteer-based or low paying, creating a space in which only those who have a separate source of wealth can meaningfully contribute. Minorities, women, and other groups who have been disproportionately excluded from wealth accumulation in the U.S. must choose between getting ahead financially and professionally addressing climate change. Incidentally, it’s also these lower-income groups who will first feel the adverse effects of the climate crisis.
Plus, large organizations like the Sierra Club, the Nature Conservancy, and the World Wildlife Fund rely heavily on charitable giving. The number of Americans giving to charity is declining, and only 3% of giving goes to environmental causes. The lack of a consistent revenue stream and the relatively small scale on which they must operate limits the work these organizations can do.
And the government isn’t doing much better. Even when a growing majority of Americans believe that environmental protection should be a priority for policy, climate change is still political. Generally, Democrats care more about addressing climate change than Republicans do. However, despite where we are today, a great deal of federal action on climate change has been led by Republicans. From the “first wave” of land protection spearheaded by Teddy Roosevelt in the early 1900s to the “second wave” of regulatory laws like the Clean Air, Clean Water, and Endangered Species Acts under Richard Nixon, conservatism hasn’t historically conflicted with conservation.
However, the election of Ronald Reagan was a turning point in American political attitudes on the environment. Reagan framed the landmark environmental legislation of the 1960s and ’70s as stifling to American businesses, and he slashed funding for the EPA and undermined dozens of bipartisan regulations on pollution and emissions. The post-Reagan Republican party followed suit, and since then it has become a badge of honor for conservative administrations to slash environmental protections in the name of growing American industry. Because our political system operates election-to-election and thus disproportionately rewards short-term deliverables, federal environmental policy is too often left to the caprices of those who will never feel the heat of a warming planet.
But, for all of our profound polarization, the United States isn’t just money-grubbing industrialists and tree-hugging Subaru owners. Democrats still care about the economy, and Republicans still care about climate change. As we’ll see, there’s a false dichotomy between sustainability and economic growth, and it’s driving us apart as a nation.
Here’s the underlying problem: right now, economic incentive is fundamentally misaligned with environmental sustainability. A path forward that is feasible in both ecological and financial terms must hybridize market capitalism with a plan for the long-term health of the planet. It must be eco-friendly enough for Democrats and business-friendly enough for Republicans.
People across the political spectrum deserve to ask “what’s in it for me?” — and they deserve an answer.
What’s that answer? I’m glad you asked. It’s natural capitalism.
What is Natural Capitalism?
Natural capitalism is traditional market capitalism with an accounting system that is expanded to include the give-and-take relationship between human interests and the natural world. The term was first used by Paul Hawken, Amory Lovins, and Hunter Lovins in their 1999 book Natural Capitalism: Creating the Next Industrial Revolution.
In addition to financial capital, natural capitalism accounts for our supply of natural capital — our global stock of natural resources. This includes all aspects of the world’s biological, hydrological, and geological cycles, from the Amazon rainforest to the open ocean to the soil in your backyard. You can think of natural capital like the money in a bank account co-owned by millions of people. That bank account is the Earth. And, just like the money in your bank account can be used to buy things that you want, natural capital gives us a variety of useful ecosystem services.
Simply put, ecosystem services are the benefits to humans that flow from our stock of natural capital. You can learn more about them here, but it’s important to know the four fundamental types of ecosystem service:
- Provisioning services: Direct products from ecosystems, like fresh water, timber, food crops, and fish.
- Regulating services: Indirect services from ecosystems, like pollination of food, pest control, and water purification.
- Supporting services: Services that keep ecosystems healthy and functional, like nutrient cycling and soil formation.
- Cultural services: Immaterial benefits to people, like recreation and mental wellbeing.
The value of global ecosystem services and their underlying natural capital is estimated to be about $33 trillion — almost twice the gross national product of every nation on Earth combined. That’s a lot of wealth that we’re ignoring.
And the great thing? We can take advantage of this massive cache of wealth in a way that is sustainable enough for the ecologically inclined and productive enough for those more interested in generating growth.
Why Natural Capitalism?
If we account for natural capital use and ecosystem service destruction, none of the world’s top industries are profitable. Natural capitalism gives us a framework through which we can address our current, unsustainable economic model and encourage long-term growth. Since the advent of industrialization, producers have been taking from the global stock of resources — our communal natural capital — far faster than it can replenish itself. As Hawken, Lovins, and Lovins put it: we’ve been liquidating our capital and calling it income. Take, for example, the fishing industry. Its income stems from selling fish, which are drawn from the global supply of ocean life. Wild fish are a stock of natural capital for the fishing industry, much like the machines in a factory are capital for a company that makes t-shirts or cars. Pulling fish out of the ocean, selling them, and calling it “income” is like selling the machines in your factory one-by-one and calling that income. It’s unsustainable, and it’s bad accounting. And, as the fishing industry is discovering, you can’t run a business that way.
The economic downsides of climate change far outweigh the output of the industries causing it. Falling crop yields, disappearing fisheries, damage from intensifying wildfires and storms — these invisible costs sit on the other side of the real accounting sheets. While traditional market capitalism is great at quickly and nimbly adapting to a changing world, it operates in terms of short-term incentive and reward. This often generates negative externalities — like greenhouse gas emissions, habitat destruction, and impacts to human health — that don’t influence quarterly earnings but which are already wreaking havoc on the economy. We can no longer ignore the costs of our reckless production of externalities. Natural capitalism internalizes the externalities, allowing us to account for these long-term costs. It shifts demand away from high-impact industries by forcing them to account for their actual costs of production — which will drive up prices and disincentivize consumers from using those products. This will encourage both market innovation and environmental accountability, and should draw support from both ends of the partisan spectrum. Here’s why:
The Liberal Angle
Repeat after me: making money isn’t a bad thing.
The way that we’ve been producing wealth in the developed world is flawed. However, the production of wealth itself is not to blame. We covered earlier why environmentalism has a money problem. Part of making sustainability more egalitarian is shifting business incentives, but an equally large part is economically elevating the underserved so they can respond to those incentives. Right now, making unsustainable choices is cheaper than making sustainable choices — and poverty is one of the world’s greatest polluters. That’s because the industries who cut corners to drive down costs aren’t forced to reckon with the downstream implications of their actions.
The natural capitalism model allows businesses to account for their impacts in a way that, if done correctly, won’t impact bottom lines and lead to declining wages and layoffs. It would be ideal if every person drive an electric vehicle and eat locally sourced food, but the cost of those markets is too high to be accessible for all. If we can incentivize the sustainable transition of core industries while still allowing them the versatility and growth afforded by a capitalist framework, we can couple human prosperity with sustainability.
The Conservative Angle
All profit is short-term profit without meaningful climate action.
Economic growth and sustainability aren’t mutually exclusive. That narrative has been propped up by decades of disinformation from a fossil fuel industry who has seen their profit margins threatened by demand shifting away from carbon-intensive energy sources. This, combined with similar campaigns from the plastics industry, have manipulated consumers into blaming themselves for climate change while simultaneously propping up industries whose models are rapidly becoming untenable or obsolete. This is fundamentally anti-capitalist. The assumptions underlying a free market include a consumer’s ability to make rationally self-interested choices. When the harms wrought by burning coal and clogging our oceans with single-use plastics are diluted and distorted, we aren’t able to make decisions that maximize benefit to ourselves — and, when scaled, to society.
Natural capitalism fixes this. Its framework simply gives a better idea of the actual costs of production — accounting for downstream costs to human wellbeing accrued by pollution and resource depletion. If extracting a barrel of crude oil costs $50 in immediate input, generates $60 in revenue, but accumulates $150 worth of cost to society when the carbon dioxide and plastic produced by the barrel are accounted for in totality, it’s no longer good business. We’re smart enough to know that our resources are limited and that we rely on the planet for needs as basic as clean water and fresh air. Now, let’s be smart enough to adapt our economy.
But that’s enough punditry. Let’s take a quick look at the nuts and bolts of natural capitalism:
How Does Natural Capitalism Work?
Natural capitalism doesn’t just score you points with tree-huggers. It ensures that your business model will be feasible and profitable far into the future. The ways in which natural capitalism can be implemented in business are as diverse as the stakeholders and issues involved. However, the basic framework is simple:
1. Assess your impact on the world’s natural capital
There are many ways to do this, but the UN’s System of Environmental Economic Accounting (SEEA) is a great place to start. This method assesses the quantity, condition, and ecosystem services associated with an area impacted by industry, and creates a rough but useful estimate of the holistic monetary value of the impact. This is usually done by combining remote sensing and mapping of land, on-the-ground field work, and economic modeling. The monetary result can then be compared to the financial capital produced by developing the land to determine whether the benefits of industry outweigh the downstream ecological costs.
2. Reinvest in natural capital
In industries like non-cultivated forest logging, cement production, and livestock ranching, the downstream costs far outweigh the economic revenue when natural capital impact is included. However, this can be mitigated by reinvesting in the natural capital that is being depleted. Managing forests, fishing at sustainable rates, and regenerative farming are great ways to create natural capital, which ensures the long-term existence of the communal resources on which both industry and humanity rely.
3. Increase the productivity of the natural resources that are used
As we reckon with the limits of our global stores of natural capital, savvy businesses are already finding new ways to stretch the use of the resources needed for production. As stocks of timber, oil, minerals, and even clean air are depleted, those who can stretch the existing supply (while simultaneously reinvesting in their production) will be those who survive. Resource scarcity is a pillar of economic theory, and expanding the definition of “resource” to include those that support the wellbeing of the humans involved in production ensures the long-term viability of a business model.
4. Adopt biologically inspired business models
Under ideal circumstances, the world’s natural cycles operate in semi-closed loops. With the exception of sunlight, nothing enters and nothing leaves the constant global cycling of carbon, nitrogen, phosphorus, water, and other resources. All products generated in these cycles, biotic or abiotic, are eventually cycled back to the beginning of the loop. This keeps our world resilient, and generates the buffers that allow humans so much leeway to multiply and pollute. To function in the long term, businesses must imitate this circularity. Eliminating the concept of a “dump” — such as a landfill, the ocean, or the atmosphere — into which waste products can “disappear” is essential. The downstream cost of emitting a ton of carbon dioxide into the atmosphere is about $50. However, if businesses prevent that carbon from being emitted or upcycle it into production, the cost is eliminated and their bottom line grows.
Moving Forward
Whether you like it or not (and, after reading this, I hope you like it), natural capitalism is already taking root across the economy. Businesses are exploring reusable packaging, regenerative agriculture, and chemical recycling. Venture capital is pouring into initiatives to regenerate natural capital. But we need to accelerate these trends if we’re going to adapt to our rapidly changing world.
Think about the natural capital all around you. Feel the ecosystem services at work. What would you be willing to pay to keep them? What would you be willing to pay to desalinate water for you to drink, or to produce oxygen for you to breathe? What would you pay to avoid having your home burned in a wildfire or destroyed by a hurricane? A lot, I’d wager. I’d also wager that you, whether you’re liberal or conservative, would rather not pay for these things. To avoid these direct costs to individuals, we need to leave our natural capital in the bank.
Where do we want to bear the gargantuan monetary costs of climate change? Will we pay to invent and produce new machines to purify water, produce oxygen, and scrub carbon dioxide from the atmosphere? Or will we invest in the low-cost, high-profit machines that nature has already provided for us? The answer is clear.
A future under the framework of natural capitalism looks fundamentally different than the present. Polluting and resource-gobbling industries will be driven out of existence not by heavy-handed government regulation, but by skyrocketing costs from the externalities with which they must finally reckon. Carbon-intensive businesses will be held financially accountable for the costs of a changing climate, and new, sustainable firms will rise to take their place. Those who choose to invest in their own natural capital by avoiding development, cultivating forests, and protecting waterways will receive payments for doing so. Electric vehicles and energy-efficient retrofitting will be paid for by the downstream costs they avoid. Republicans and Democrats alike will race to show the public who is more effective at generating profit for their constituents through climate change mitigation. This is all a possibility, and it’s closer to reality than we think.
Economic and ecological sensibility demand we make the switch to natural capitalism. Our health and wealth hang in the balance — and the path forward is clearer than ever before.
