This is the sixth and final part of a guest post series by Nuno Gas­par de Oliveira who works as con­sul­tant and advi­sor in Esporão, a por­tuguese main wine and olive oil com­pany, in the area of Strate­gic Man­age­ment for sus­tain­abil­ity using ‘Busi­ness Ecosys­tems’ models,

This guest post has pre­vi­ously been pub­lished on LinkedIn. It is the expres­sion of the author’s thoughts and expe­ri­ences and as such is acknowl­edged as a fruit­ful con­tri­bu­tion to the dis­cus­sion on bio­di­ver­sity off­sets. If you want to react or clar­ify your own posi­tion (under­pin or dis­prove), please leave a reply below!

So, Nature finally had a price tag. Or at least a value con­sid­er­ing its nat­ural cap­i­tal, as pro­vided by the Earths’ bio­mes and ecosystems.

At the same time that Costanza’s audac­ity to “put a num­ber on nature” was gain­ing momen­tum, another increas­ingly appeal­ing con­cept was on a fast track to suc­ceed both at the polit­i­cal and media level – the Eco­log­i­cal Foot­print. The idea of Eco­log­i­cal Foot­print was devel­oped since the early 90’s by sci­en­tists like William Rees and Mathis Wack­er­nagel and mainly lever­aged on the con­cept of car­ry­ing capac­ity and the biosphere’s abil­ity to regen­er­ate resources and pro­vide ser­vices. In a short definition:

“Eco­log­i­cal foot­print can be rep­re­sented as the aggre­gate area of land and water in var­i­ous eco­log­i­cal cat­e­gories that is claimed by par­tic­i­pants in that econ­omy to pro­duce all the resources they con­sume, and to absorb all their wastes they gen­er­ate on a con­tin­u­ous basis, using cur­rent tech­nol­ogy. (…) Eco­log­i­cal econ­o­mists acknowl­edge that indus­tri­al­ized soci­eties depend for sur­vival not only on labor and human-made cap­i­tal, but also on nat­ural cap­i­tal” (Wack­er­nagel and Rees, 1996).

 

The Eco­log­i­cal Foot­print model, on which the human impacts could be mea­sured in a nor­malised ver­sion on how much land it would take to pro­duce a given service/product  — the Global Hectare vs Earth’s Bio­ca­pacty – focused mostly in a com­modi­tized view of nature’s ser­vices and resources. Yet, nat­ural cap­i­tal can­not be sim­pli­fied into resource account­ing and inven­tory, some­thing that’s has been made clearly stated by econ­o­mists like John Richard Hicks and Her­man Daly. Hicks and inclu­sively pro­posed an early ver­sion of nat­ural cap­i­tal full account­ing called the ‘Hick­sian Nat­ural Income’, that could be shortly defined as “the level of con­sump­tion that can be sus­tained from one period to another period with­out reduc­ing nat­ural wealth”. Daly rein­forced the impor­tance of ade­quately intro­duce the con­cept of nat­ural cap­i­tal account­ing into the main­stream econ­omy, point­ing out one of the major prob­lems ahead:

“Our prob­lem is that the cap­i­tal we have endeav­ored to main­tain intact is humanly cre­ated cap­i­tal only. The cat­e­gory ‘nat­ural cap­i­tal’ is left out. Indeed it is left out by def­i­n­i­tion as long as one defines cap­i­tal as pro­duced means of pro­duc­tion” (Daly, 1994)

Fol­low­ing this line of though, com­bin­ing early out­comes from eco­log­i­cal econ­o­mists and ecol­o­gists work­ing with eco­nomic mod­els for esti­mat­ing nature’s car­ry­ing capac­ity and ecosys­tem ser­vices, some peo­ple came to the con­clu­sion that full account­abil­ity and inte­gra­tion of nat­ural cap­i­tal was some­thing absolutely crit­i­cal for busi­ness strat­egy devel­op­ment.

Among these peo­ple, a trio com­posed by Amory B. Lovins, L. Hunter Lovins and Paul Hawken embraced the con­cept of nat­ural cap­i­tal and enabled it into a post­mod­ern vision of cap­i­tal­ism in their book ‘A Road Map to Nat­ural Cap­i­tal­ism’ (1999). Strongly based on the beliefs that ratio­nal­ism and ecol­o­gism could bind together to form a new vision of sus­tain­able busi­ness strat­egy, the authors argued that ‘no one would run a busi­ness with­out account­ing for its cap­i­tal out­lays’. It was made clear that most com­pa­nies over­look one major cap­i­tal com­po­nent — the value of the bios­phere. And this idea pro­duced a new and defy­ing approach to a future ecological-economic gov­er­nance system:

“Nat­ural cap­i­tal­ism addresses those prob­lems by rein­te­grat­ing eco­log­i­cal with eco­nomic goals. Because it is both nec­es­sary and prof­itable, it will sub­sume tra­di­tional indus­tri­al­ism within a new econ­omy and a new par­a­digm of pro­duc­tion, just as indus­tri­al­ism pre­vi­ously sub­sumed agrar­i­an­ism. The com­pa­nies that first make the changes we have described will have a com­pet­i­tive edge. Those that don’t make that effort won’t be a prob­lem because ulti­mately they won’t be around.”

Yes, a new gov­er­nance sys­tem was an increas­ingly pur­sued ‘holy grail’both for politi­cians, econ­o­mists and an increas­ing fringe com­ing from the sci­en­tific community.

One of this ‘new cru­saders’ was Eli­nor Ostrom, a senior econ­o­mist deeply curi­ous of Hardin’s alle­ga­tions on the ‘Tragedy of the Com­mons’ the­ory and sub­se­quent devel­op­ments on the same. Ostrom’s strong con­vic­tions on the human abil­ity to use ‘com­mon sense’ led her to argue that, as a whole, we would sort out ratio­nal ways of sur­viv­ing and get­ting along. Despite the world’s arable land, forests, fresh water and fish­eries were all finite, it was pos­si­ble to share them with­out deplet­ing them and to care for them with­out fight­ing. Yes, just because she stud­ied (the) tragedy, it didn’t meant that she fully agreed with its outcome:

“Unfor­tu­nately, many ana­lysts – in acad­e­mia, special-interest groups, gov­ern­ments, and the press – still pre­sume that common-pool prob­lems are all dilem­mas in which the par­tic­i­pants them­selves can­not avoid pro­duc­ing sub­op­ti­mal results, and in some cases dis­as­trous results.”‘Gov­ern­ing the Com­mons’ (1990)

Almost 20 years after her game-changing argu­ments on gov­er­nance mod­els for the com­mons, on which most nat­ural cap­i­tal value was included both as com­modi­ties and exter­nal­i­ties, in her 2009 Nobel Memo­r­ial Prize speech, Ostrom argued on how com­mon prop­erty could be suc­cess­fully man­aged by user asso­ci­a­tions, mak­ing the atmos­phere an asset with prop­erty rights on behalf of the global com­mu­nity. Any­one who dam­ages the global prop­erty is charged for dam­age, which pro­vides legal jus­ti­fi­ca­tion for instru­ments like a car­bon tax, which tax is used to pay a div­i­dend to all of the own­ers. And from then onward, the need for a juridi­cal frame­work that embed­ded nat­ural cap­i­tal global gov­er­nance had been con­sis­tently chased.

And the chase con­tin­ues, with eco­nom­ics and busi­ness strat­egy being one of the most active fronts. Most com­pa­nies are tak­ing a huge risk by treat­ing nat­ural resources as if they are infi­nite rather than mea­sur­ing and respond­ing to the busi­ness risks cre­ated by their depen­dency on nat­ural cap­i­tal. This depen­dency is still largely hid­den from view, mean­ing that com­pa­nies could have sig­nif­i­cant unman­aged risks in their sup­ply chains and mate­r­ial off-balance liabilities.

The sig­nif­i­cance is straight­for­ward enough: com­pa­nies make money from nat­ural cap­i­tal in one way or another – it includes the raw mate­ri­als to make prod­ucts, the ocean on which those prod­ucts are sailed to new mar­kets and the fuel the ships burn – but  they rarely account for the true costs or the asso­ci­ated risks. This will leave them vul­ner­a­ble as it becomes more obvi­ous that, con­trary to tra­di­tional eco­nomic and finan­cial think­ing, nat­ural resources are not infinite.

One of the cham­pi­ons defend­ing the urgent need to fully and com­pre­hen­sively account for nat­ural cap­i­tal is noth­ing less than HRH Charles, Prince of Wales, the patron of ‘The Prince’s Account­ing for Sus­tain­abil­ity Project’. In one of the project’s ini­tia­tives, ‘The Prince’s Account­ing for Sus­tain­abil­ity Forum’ (2013), Prince Charles stated that:

‘In stark finan­cial terms, all the evi­dence demon­strates a sim­ple fact: we are fail­ing to run the global bank that we call our planet in a com­pe­tent man­ner. We no longer just take a div­i­dend each year; instead, for some time, we have been dig­ging deep into our cap­i­tal reserves. And, after the near col­lapse of our entire finan­cial sys­tem, we all know that such exces­sive risk-taking can cause immense havoc. The ulti­mate bank on which we all depend – the bank of nat­ural cap­i­tal – is in the red; the debt is get­ting ever big­ger and that is reduc­ing Nature’s resilience and con­sid­er­ably imped­ing her abil­ity to re-stock. It leaves us dan­ger­ously exposed.’

Albeit Ostrom’s hope that we could agree on a happy end­ing based on ratio­nal­ity and human­ist per­spec­tives, we still fail to approach even the thin­ner lay­ers of com­mon ground to ‘domes­ti­cate’ the eco­nomic and finan­cial sys­tem that makes money spin around. We became more and more found of risk­ing every­thing, despite the fact that we know so lit­tle about the risks we’re taking.

In 2005, out of the mist of trade pits came a philoso­pher, announc­ing that we were being ‘Fooled by Ran­dom­ness’. In 2007 the same per­son warned us about the impacts of the highly improb­a­ble, the now called ‘Black Swan’ effect. Nicholas Nas­sim Taleb appeared like he him­self was a black swan, shock­ing our naïve con­vic­tions that all could be explained and pre­dicted by illu­mi­nated peo­ple in high places (and seated in higher money piles).  In fact, we were not just being irra­tional but strongly prone to fol­low dan­ger­ous per­sons and beliefs:

“It has been more prof­itable for us to bind together in the wrong direc­tion than to be alone in the right one. Those who have fol­lowed the assertive idiot rather than the intro­spec­tive wise per­son have passed us some of their genes. This is appar­ent from a social pathol­ogy: psy­chopaths rally fol­low­ers” ‘The Black Swan: The Impact of the Highly Improb­a­ble’ (2007)

Taleb’s alle­ga­tions went fur­ther up on the road when in 2012 he released a ground-breaking hypoth­e­sis stress­ing the impor­tance of dis­pers­ing risk and also, at the same time, con­sider inac­tion when unsure on how to inter­fere with a given phe­nom­e­non and also assume lim­ited or con­trolled risk tak­ing deci­sions.

Beyond resilience, there was Antifragility. The ‘Antifragility hypoth­e­sis’states that a pos­i­tive response to a stres­sor or source of harm (for some range of vari­a­tion), lead­ing to a pos­i­tive sen­si­tiv­ity to increase in volatil­ity or vari­abil­ity, stress, dis­per­sion of out­comes, or uncer­tainty to some point, some sys­tems might even ben­e­fit from a cer­tain degree of stress and dis­tur­bance in order to cre­ate mech­a­nisms and options to deal with shocks and major dis­tur­bances. In short, Antifragility could be bet­ter under­stood when look­ing deeply into the way Mother Nature’s takes care of us and of her nat­ural sys­tems:

“If there is some­thing in nature you don’t under­stand, odds are it makes sense in a deeper way that is beyond your under­stand­ing. So there is alogic to nat­ural things that is much supe­rior to our own. Just as there is a dichotomy in law: ‘inno­cent until proven guilty’ as opposed to ‘guilty until proven inno­cent’, let me express my rule as fol­lows: what Mother Nature does is rig­or­ous until proven oth­er­wise; what humans and sci­ence do is flawed until proven oth­er­wise”, ‘Antifrag­ile: Things That Gain from Dis­or­der’ (2012)

 

And so, with this per­spec­tive that we are in no case supe­rior to Nature in what regards pro­vid­ing and main­tain­ing a global equi­lib­rium, vital to human exis­tence, and mostly based on what we often call ecosys­tem ser­vices and nat­ural cap­i­tal avail­abil­ity, we’re com­ing to the end of our very short ‘short story’ on how nat­ural cap­i­tal has been per­ceived by mainly the west­ern society.

I’m aware of the lim­its of this nar­ra­tive and my own lim­its on fully under­stand­ing it, or about the things that I’ve approached in this series of arti­cles. But in order to close this ‘Brief His­tor­i­cal Per­spec­tive on Nat­ural Cap­i­tal’ series, I’d like to leave you with a final though, not from a west­ern econ­o­mist or ecol­o­gist, but from an ori­en­tal non-scientist, one of the most sen­tient artists of the XXth century:

 “Peo­ple today have for­got­ten they’re really just a part of nature. Yet, they destroy the nature on which our lives depend. They always think they can make some­thing bet­ter. Espe­cially sci­en­tists. They may be smart, but most don’t under­stand the heart of nature. They only invent things that, in the end, make peo­ple unhappy. Yet they’re so proud of their inven­tions. What’s worse, most peo­ple are, too. They view them as if they were mir­a­cles. They wor­ship them. They don’t know it, but they’re los­ing nature. They don’t see that they’re going to per­ish. The most impor­tant things for human beings are clean air and clean water.” Akira Kuro­sawa in ‘Yume (Dreams)’, 1990.