Natural Capital, per Investopedia, is defined as the inventory of natural resources held by companies, such as
Question:
Natural Capital, per Investopedia, is defined as "the inventory of natural resources held by companies, such as water, gold, natural gas, silver, or oil. Like all commodity resources, these natural capital commodities must be certificated ... Natural capital must also be managed on a company's financial statements which requires natural capital accounting." https://www.investopedia.com/terms/n/natural-capital.asp Links to an external site.This represents a definition of Natural Capital taken from the point of view of the derivatives markets.
However, in modern finance and economics, we define Natural Capital as "the world's stocks of natural assets which include geology, soil, air, water and all living things. It is from this natural capital that humans derive a wide range of services, often called ecosystem services, which make human life possible" (https://naturalcapitalforum.com/about/ Links to an external site.).
The two definitions are crucially distinct and worth understanding in-depth, since globally, business and finance are moving away from the commodity/derivatives market-based view of NC (as expressed by the Investopedia) to an ESG risk view (as expressed by the broader range of organizations, such as the Natural Capital Forum).
Specifically, consider VUCA environment.
Which definition falls more within the realm of VUCA analysis as opposed to risk analysis, and why? What implications for the cost of capital does wide-scale adoption of Natural Capital framework as defined by Investopedia likely to have? What about the cost of capital under the framework defined by the Nat. Cap Forum? Why? Which definition requires more in-depth analysis of business models companies deploy today? and Which definition requires more advanced planning and strategy analysis by businesses today? Why?
Managing Business Ethics Making Ethical Decisions
ISBN: 9781506388595
1st Edition
Authors: Alfred A. Marcus, Timothy J. Hargrave