It's natural capital, stupid

Natural capital accounts are an emerging concept in measuring the holistic impact of investment. But what are they? Bram Miller and Samathan Deacon of Ramboll Environ take a look.

In the Spring Budget, the Chancellor, Philip Hammond, reaffirmed his commitment to local transport networks with the allocation of £690m for local authorities. Solving local congestion issues is vital for the UK's productivity and economy, with recent estimates suggesting that congestion will cost the British economy as much as £307bn by 2030. The funds are part of a new era of increased spending on infrastructure, at both local and national level, such as high-speed rail.

The economic benefits appear to be the main motivation behind this investment; however, this approach is too narrow when deciding how to invest precious public funds. There is another approach based around the increasingly prominent concept of "natural capital" that could enhance decision making.

While Government approaches to the appraisal and allocation of spending on infrastructure do aim to take account of wider positive and negative impacts on the environment and society, the reality is that the economy is still king. In sustainability terms, we often talk about a triple bottom line approach (economy, society and environment), but how often do strategic decisions really take account of society and the environment?

The natural capital approach looks at resources such as plants, air, water and soils, and accounts for benefits that they can provide to society. Examples of benefits include raw materials for products we use, clean air we breathe and water we drink. While this may seem like an esoteric concept, it underpins the new Environment White Paper and there is a groundswell of work in this area, from the Government's own Natural Capital Committee to the Natural Capital Coalition, which is increasing the prominence of natural capital and its potential to inform decisions in the public and private sectors.

Economists, working alongside environmental specialists, are able to develop natural capital accounts for organisations and calculate the negative and positive impacts on these accounts. The aim is to provide the ability to account for a much wider range of benefits and "disbenefits" from any kind of intervention, whether the construction of a new road, a new settlement or valuing compensatory offsets.

This emphasis on accounting has the ability to result in a step-change to the way we consider the impact of investments, by using the language of money and economy in a much wider context. While this is still very much an emerging area, it is increasingly possible to monetise natural capital.

Using guidance from Natural England, authorities have already committed to the development of green infrastructure using natural capital and ecosystem services principles. Green infrastructure aims to deliver a broad range of ecosystem services and linked social and economic benefits that clearly demonstrate the relevance of the natural environment to the lives and livelihoods of individuals and communities; they make a direct contribution to the climate change "proofing" of people's homes and communities, and enhance the self-sufficiency of communities though providing local food production and recreational areas.

Some local authorities and other government authorities are already progressing their thinking on developing natural capital accounts and how to use this to inform decision making. However, it is still relatively early days and there is an opportunity for trailblazers to set themselves apart. In the uncertain world of funding in post-Brexit Britain, opportunities to show leadership and, importantly, to demonstrate more fully the benefits of investment could be essential to tapping into available funding.

The first step for a local authority, or indeed any organisation, would be to engage with the emerging guidance and begin the process of developing an account, which sets a baseline against which future investments can be assessed. There is not a ready-made "turn the handle" methodology available, but it is now possible for a natural capital baseline to be constructed for a large area, such as the boundaries of a local authority or, at a smaller scale, the boundaries of an individual project. Such an approach could not only paint a more holistic picture of how an investment will impact on society, but also could provide authorities with a deeper understanding what their priorities should be.

This process could be catalysed by the driver to seek funding, by a large-scale potential investment in infrastructure such as Hammond's recent announcement. Another option is potentially through the Strategic Environmental Assessment (SEA) and Sustainability Appraisal (SA) processes, which are applied to the development of Local Plans and other strategic plans. Some pioneering authorities are already building natural capital into SEA and SA for their areas, and this is an obvious first step.

It seems likely that in a few years from now a natural capital account will not be optional and local authorities may wish to consider being a part of the early cohort to shape best practice.

Samantha Deacon is manager and Bram Miller is technical director at Ramboll Environ.