SECTION 2 THE NATURAL CAPITAL STOCK APPROACH

2.1 The Natural Capital Stock Concept

2.1.1.1

This section addresses the key concept of capital stock which is critical to the concept of sustainable development. After a brief discussion of the four principal types of capital stock and their inter-relationship, further analysis of the 'natural capital stock' in the context of sustainability is presented followed by a comment on the use of the natural capital stock concept as a basis for this environmental baseline report. This section is not intended to provide a full discussion or literature review with regard to natural capital, but rather an overview of the concept in order to set the context for the report's approach.

Introduction to Capital Stock
   
2.1.1.2 The identification and definition of capital stock provides us with a means to better understand the relationship between human activity and industry and natural systems. The term 'capital' can be defined broadly as a stock of something which yields a flow of useful goods or services (Costanza et al 1997), and definitions of sustainability often refer to the need to live from that flow, or 'income', rather than eroding the capital resource base which provides that income, for example through over production and consumption.
   
2.1.1.3 Four distinct types of capital stock can be identified which together help to characterise the range of anthropogenic and natural factors which contribute to general well-being (or 'development'), and whose interaction influences the level of sustainability. The four types of stock are man-made capital, human capital, social capital and natural capital, and expanded definitions are provided in Box 2.1a overleaf.
   
2.1.1.4

A key concept for sustainable development is the degree to which natural and human capital stock can be substituted or whether they are essentially complementary. This is because man converts natural capital into manufactured capital as part of the process of production, whilst simultaneously depleting assimilative capacity. It can be argued (Jansson et al 1994, Hawken et al 1999) that perfect and unlimited substitution between natural and man-made capital cannot take place since man-made capital cannot be created and sustained without energy and natural resources, and the use of these resources can lead to adverse impacts as well as depletion. It is generally stated therefore that these two forms of capital are, in fact, complements (whereby human capital is employed to make effective use of natural capital) and the degree to which substitution is acceptable is determined by the model of sustainability. For example, so-called 'weak' sustainability refers to the maintenance of all forms of capital as a total level without regard to the composition of the different types of capital involved. Conversely, strong sustainability requires not only the maintenance of total capital, but also attention to the different types of capital and in particular the natural capital, such that human and natural capital are not viewed as substitutable.

Box 2.1a Forms of Capital Stock

Man-made Capital is generated through economic activity, human ingenuity and technological development. It can be thought of as manufactured capital or the 'produced means of production' and is the definition of capital traditionally used in economics.

Human Capital can be thought of as the collective human knowledge, skills and intellect which, when applied, can be used to convert natural capital to man-made capital. Human and social capital together effectively form the 'interface' between man-made and natural capital.

Social Capital, sometimes called 'moral capital', refers to the stock of community resources and to the community, religious, ethical, social and cultural interactions which give rise to collective social wellbeing.

Natural Capital can very simply be defined as the 'natural environment' or the stock of natural assets that yields a flow of valuable goods and services into the future.

Sources: Costanza et al (1997), Jansson et al (1994), Collados and Duane (1999), Rees (1996), Goodland and Daly (1996)