The following material has been drawn, with permission, from DFID’s Sustainable Livelihoods Guidance Sheets.  For an introduction to the asset pentagon, change in asset status, and relationships within the framework (click here) 

What is Natural Capital?

Natural capital is the term used for the natural resource stocks from which resource flows and services (e.g. nutrient cycling, erosion protection) useful for livelihoods are derived. There is a wide variation in the resources that make up natural capital, from intangible public goods such as the atmosphere and biodiversity to divisible assets used directly for production (trees, land, etc.).

Within the sustainable livelihoods framework, the relationship between natural capital and the Vulnerability Context is particularly close.  Many of the shocks that devastate the livelihoods of the poor are themselves natural processes that destroy natural capital (e.g. fires that destroy forests, floods and earthquakes that destroy agricultural land) and seasonality is largely due to changes in the value or productivity of natural capital over the year.

Why is it important?

Clearly, natural capital is very important to those who derive all or part of their livelihoods from resource-based activities (farming, fishing, gathering in forests, mineral extraction, etc.).  However, its importance goes way beyond this. None of us would survive without the help of key environmental services and food produced from natural capital.  Health (human capital) will tend to suffer in areas where air quality is poor as a result of industrial activities or natural disasters (e.g. forest fires).  Although our understanding of linkages between resources remains limited, we know that we depend for our health and well-being upon the continued functioning of complex ecosystems (which are often undervalued until the adverse effects of disturbing them become apparent).

What can be done to build the natural capital of the poor?

Past rural development efforts focused largely on building natural capital.  Indeed concern with natural capital itself has tended to detract attention from the more important issue of how natural capital is used, in combination with other assets, to sustain livelihoods. The livelihoods approach tries to take a broader view, to focus on people and to understand the importance of structures and processes (e.g. land allocation systems, rules governing extraction from fisheries, etc.) in determining the way in which natural capital is used and the value that it creates.

INSIGHT

Natural capital and services deriving from it include: land, forests, marine/wild resources, water, air quality, erosion protection, waste assimilation, storm protection, biodiversity degree and rate of change.  For all these it is important to consider access and quality and how both are changing.

Sustainable livelihoods objective: more secure access to, and better management of, natural resources ... achieved through (for example):

Direct support to asset accumulation

Indirect support (through Policy, Institutions, & Processes)

Feedback from achievement of livelihood outcomes 

To conserve resources and biodiversity (through technology and direct action)

To the provision of services/

inputs for forestry, agriculture, fisheries

Reform of organisations that supply services to those involved in forests/ agriculture/fisheries

Changes in institutions that manage, and govern access to, natural resources

Environmental legislation and enforcement mechanisms 

Support to market development to increase the value of forest/agricultural/fisheries produce

More sustainable use of natural resources has a direct impact upon stocks of natural capital

Some positive correlation between higher income and investment in natural capital

These structures and processes govern access to natural resources and can provide the incentives or coercion necessary to improve resource management. For example, if markets are well-developed, the value of resources is likely to be higher, prompting better management (though in some cases, developed markets can lead to distress sales by the poor resulting in increased poverty).

Though indirect support to natural capital through Policy, Institutions and Processes is very important, direct support focused on resources themselves as opposed to people’s ability to use those resources  still has a place when it comes to conservation for future use (e.g. in situ biodiversity conservation).  One of the foundations of the sustainable livelihoods approach is the belief in and pursuit of various types of sustainability.  This includes, but is not limited to, environmental sustainability (i.e. sustainability of natural capital and the services that derive from it, such as carbon sinks and erosion control).

What kind of information is required to analyse natural capital?

It is not only the existence of different types of natural assets that is important, but also access, quality and how various natural assets combine and vary over time (e.g. seasonal variations in value).  For example, degraded land with depleted nutrients is of less value to livelihoods than high quality, fertile land, and the value of both will be much reduced if users do not have access to water and the physical capital or infrastructure that enables them to use that water.

With natural resources it is also very important to investigate long-term trends in quality and use. This is familiar territory for those skilled in the practice of rural appraisal techniques (mapping, transect walks, etc.).  Typical issues for analysis might include:.

• Which groups have access to which types of natural resources?

• What is the nature of access rights (e.g. private ownership, rental, common ownership, highly contested access)? How secure are they? Can they be defended against encroachment?

• Is there evidence of significant conflict over resources?

• How productive is the resource (issues of soil fertility, structure, salinisation, value of different tree species, etc.)? How has this been changing over time (e.g. variation in yields)?

• Is there existing knowledge that can help increase the productivity of resources?

• Is there much spatial variability in the quality of the resource?  How is the resource affected by externalities? (For example: the productive potential of different parts of watersheds is affected by the activities of other users and the way in which resource systems operate; the value of fisheries depends upon the number of other users who have access and the choices they make about their catches; biodiversity is often damaged by intensive agriculture.)

• How versatile is the resource? Can it be used for multiple purposes? (This can be important in cushioning users against particular shocks.) 

Environmental economists have invested considerable effort in trying to determine overall values for natural assets that take into account:

• direct use value (e.g. of land used for agricultural production or of recreational areas);

• indirect use value (e.g. biodiversity, erosion protection and other ecological services); and

• non-use value, or existence value (often calculated on the basis of the amount people would be willing to pay to see the continued existence of a given resource, regardless of whether they use it).

This type of valuation exercise helps remind us of the many uses of natural resources and also of our obligations as ‘custodians’ rather than ‘owners’.  However, most livelihoods analysis of natural capital will not go this far.  Indirect use values are likely to feature prominently in calculations only when they are problematic or where they offer significant income prospects.  For example:

• Problems might arise where tree felling has caused knock-on erosion problems, or over-exploitation of coastal areas is leading to increased storm damage in adjacent areas.

• Significant income earning opportunities might exist in areas of high natural biodiversity.

INSIGHT

Various organisations (including the World Bank, the Royal Tropical Institute in the Netherlands, various CGIAR centres and the University of Bradford, Development and Project Planning Centre) are currently working on the development and refinement of (participatory) indicators of environmental sustainability and resource quality.