What does Natural Capitalism mean?

Natural Capitalism is the title of a 1999 book by Amory Lovins and Hunter Lovins, founders of the Rocky Mountain Institute , and Paul Hawken, co-founder of Smith & Hawken garden and house retailer. But what does it mean?

The root is the observation that most businesses consume (transform, ruin for other uses) natural resources without having to account for them as they do financial capital or human capital. But nature, the environment, those forests cut down for paper, the oceans fished, and plains fertilized and pesticized (I think I invented that word!) for too much sugar (corn) and protein (beef), also provide other "services" such as "water storage, habitat and regulation of the atmosphere and climate." L, L & H reported calculations in the journal Nature "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." *

In other words, if these services were on the balance sheet, companies would need to behave very differently. How should they behave?

1. "Dramatically increase the productivity of natural resources." With the incentive of measurement, companies have already found ways to reduce waste by factors of a 100.

2. "Shift to biologically inspired production models." Nature doesn't recognize the concept of waste; everything is feedstock for another process. Manufacturing can find many opportunities to do the same.

3. "Move to a solutions-based model." Instead of selling a car, which immediately begins to depreciate and deteriorate, sell personal transportation. All of a sudden, the need to lower the capital costs and production waste, and make sure the product can be recycled at the same or even higher value -- instead of lower (turning water bottles into park benches), becomes obvious to companies.

4. "Reinvest in natural capital...Restore, sustain and expand the planet's ecosystems." After all that's what businesses do with financial capital, and even human capital (training).

The article and the book continue with example after example showing how these can be applied: replacing a 95 hp pump with a 7 hp one -- a 92% reduction, for example. How? Replace thin pipes with fatter ones -- but wait, the smoother flow in larger pipes don't save enough to justify the higher capital cost. Right? Not if you also include "the lower capital cost of the smaller pumping equipment that would be needed...pumps, motors, and electrical components."

And then: straighten the path of the pipes. The engineer laid out the pipes first, then position the various tanks, boilers, etc. Bends increase friction, make installation more expensive, and cost less to insulate.

This is whole-system thinking.


*Quotes from the Harvard Business Review article "A Road Map for Natural Capitalism" from 1999, and now part of "The Best of HBR."