A ROAD MAP FOR NATURAL CAPITALISM

by Amory Lovins, L. Hunter Lovins, and Paul Hawken

The earth's ability to sustain life, and therefore economic activity, is threatened by the way we extract, process, transport, and dispose of a vast flow of resources-some 220 billion tons a year, or more than 20 times the average American's body weight every day. With dangerously narrow focus, our industries look only at the exploitable resources of the earth's ecosystems-its oceans, forests, and plains-and not at the larger services that those systems provide for free. Resources and ecosystem services both come from the earth-even from the same biological systems-but they're two different things. Forests, for instance, not only produce the resource of wood fiber but also provide such ecosystem services as water storage, habitat, and regulation of the atmosphere and climate. Yet companies that earn income from harvesting the wood fiber resource often do so in ways that damage the forest's ability to carry out its other vital tasks.

The reason companies (and governments) are so prodigal with ecosystem services is that the value of those services doesn't appear on the business balance sheet. But that's a staggering omission. The economy, after all, is embedded in the environment. Recent calculations published 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 with-out them.

This article puts forward a new approach not only for protecting the biosphere but also for improving profits and competitiveness. Some very simple changes to the way we run our businesses, built on advanced techniques for making resources more productive, can yield startling benefits both for today's share-holders and for future generations.

This approach is called natural capitalism because it's what capitalism might become if its largest category of capital-- the "natural capital" of ecosystem services -- were properly valued. The journey to natural capitalism involves four major shifts in business practices, all vitally interlinked:

Dramatically increase the productivity of natural resources.
Reducing the wasteful and destructive flow of resources from depletion to pollution represents a major business opportunity. Through fundamental changes in both production design and technology, farsighted companies are developing ways to make natural resources-energy, minerals, water, forests-stretch 5, 10, even 100 times further than they do today. These major resource savings often yield higher profits than small resource savings do-or even saving no resources at all would-and not only pay for themselves over time but in many cases reduce initial capital investments.

Shift to biologically inspired production models.
Natural capitalism seeks not merely to reduce waste but to eliminate the very concept of waste. In closed-loop production systems, modeled on nature's designs, every output either is returned harmlessly to the ecosystem as a nutrient, like compost, or becomes an input for manufacturing another product. Such systems can often be designed to eliminate the use of toxic materials, which can hamper nature's ability to reprocess materials.

Move to a solutions-based business model.
The business model of traditional manufacturing rests on the sale of goods. In the new model, value is instead delivered as a flow of services -- providing illumination, for example, rather than selling light-bulbs. This model entails a new perception of value, a move from the acquisition of goods as a measure of affluence to one where well-being is measured by the continuous satisfaction of changing expectations for quality, utility, and performance. The new relationship aligns the interests of providers and customers in ways that reward them for implementing the first two innovations of natural capitalism —resource productivity and closed-loop manufacturing.

Reinvest in natural capital.
Ultimately, business must restore, sustain, and expand the planet's ecosystems so that they can produce their vital services and biological resources even more abundantly. Pressures to do so are mounting as human needs expand, the costs engendered by deteriorating ecosystems rise, and the environmental awareness of consumers increases. Fortunately, these pressures all create business value.

Natural capitalism is not motivated by a current scarcity of natural resources.
Indeed, although many biological resources, like fish, are becoming scarce, most mined resources, such as copper and oil, seem ever more abundant. Indices of average commodity prices are at 28-year lows, thanks partly to powerful extractive technologies, which are often subsidized and whose damage to natural capital remains unaccounted for. Yet even despite these artificially low prices, using resources manyfold more productively can now be so profitable that pioneering companies — large and small — have already embarked on the journey toward natural capitalism.'

Still the question arises—if large resource savings are available and profitable, why haven't they all been captured already? The answer is simple: scores of common practices in both the private and public sectors systematically reward companies for wasting natural resources and penalize them for boosting resource productivity. For example, most companies expense their consumption of raw materials through the income statement but pass resource-saving investment through the balance sheet. That distortion makes it more tax efficient to waste fuel than to invest in improving fuel efficiency. In short, even though the road seems clear, the compass that companies use to direct their journey is broken. Later we'll look in more detail at some of the obstacles to resource productivity — and some of the important business opportunities they reveal. But first, let's map the route toward natural capitalism.

HARVARD BUSINESS REVIEW May-June 1999