Academic journal article Journal of Business Administration and Policy Analysis

A Road Map for Natural Capitalism

Academic journal article Journal of Business Administration and Policy Analysis

A Road Map for Natural Capitalism

Article excerpt

On September 16, 1991, a small group of scientists was sealed inside Biosphere II, a glittering 3.2-acre glass and metal dome in Oracle, Arizona. Two years later, when the radical attempt to replicate the earth's main ecosystems in miniature ended, the engineered environment was dying. The gaunt researchers had survived only because fresh air had been pumped in. Despite $200 million worth of elaborate equipment, Biosphere II had failed to generate breathable air, drinkable water, and adequate food for just eight people. Yet Biosphere I, the planet we all inhabit, effortlessly performs those tasks every day for 6 billion of us.

Disturbingly, Biosphere I is now itself at risk. The earth's ability to sustain life, and therefore economic activity, is threatened by the way we extract, process, transport, and dispose of a vast flow of resources -- some 220 billion tons a year, or more than 20 times the average American's body weight every day. With dangerously narrow focus, our industries look only at the exploitable resources of the earth's ecosystems -- its oceans, forests, and plains - and not at the larger services that those systems provide for free. Resources and ecosystem services both come from the earth -- even from the same biological systems -- but they're two different things. Forests, for instance, not only produce the resource of wood fiber but also provide such ecosystem services as water storage, habitat, and regulation of the atmosphere and climate. Yet companies that earn income from harvesting the wood fiber resource often do so in ways that damage the forest's ability to carry out its other vital tasks.

Unfortunately, the cost of destroying ecosystem services becomes apparent only when the services start to break down. In China's Yangtze basin in 1998, for example, deforestation triggered flooding that killed 3,700 people, dislocated 223 million, and inundated 60 million acres of cropland. That $30-billion disaster forced a logging moratorium and a $12 billion crash program of reforestation.

The reason companies (and governments) are so prodigal with ecosystem services is that the value of those services doesn't appear on the business balance sheet. But that's a staggering omission. The economy, after all, is embedded in the environment. Recent calculations published in the journal Nature (Costanza et al., 1997,387:253-260) conservatively estimate the value of all the earth's ecosystem services to be at least $33 trillion a year. That's close to the gross world product, and it implies a capitalized book value on the order of half a quadrillion dollars. What's more, for most of these services, there is no known substitute at any price, and we can't live without them.

This article puts forward a new approach not only for protecting the biosphere but also for improving profits and competitiveness. Some very simple changes to the way we run our businesses, built on advanced techniques for making resources more productive, can yield startling benefits both for today's shareholders and for future generations.

This approach is called natural capitalism because it's what capitalism might become if its largest category of capital -- the "natural capital" of ecosystem services -- were properly valued. The journey to natural capitalism involves four major shifts in business practices, all vitally interlinked:

(1) Dramatically increase the productivity of natural resources. Reducing the wasteful and destructive flow of resources from depletion to pollution represents a major business opportunity. Through fundamental changes in both production design and technology, farsighted companies are developing ways to make natural resources -- energy, minerals, water, forests -- stretch 5, 10, even 100 times further than they do today. These major resource savings often yield higher profits than small resource savings do -- or even saving no resources at all would -- and not only pay for themselves over time but in many cases reduce initial capital investments. …

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