This report considers the linkages between natural capital and human prosperity. It finds that the erosion of natural capital poses threats to continued national and global prosperity, yet political and economic systems are unprepared for responding to that risk for three reasons. First, natural capital is not being accurately measured or valued in the context of ecological tipping points and thresholds. Second, aggregate economic models are ill-equipped for seeing the dependencies between ‘capitals’. Most cost-benefit analyses and economic methodologies used in everyday decisions assume that natural capital can be easily substituted by man-made capital, when in fact it cannot. Third, we lack appropriate political and economic institutions to manage natural capital effectively; even national wealth accounts provide an incomplete picture of the value of natural capital.

The paper identifies two key opportunities that emerge from these challenges and offers recommendations on accounting and valuation, measurement, economics and governance of natural capital.

This paper was led by the Institute for New Economic Thinking at the Oxford Martin School and the Smith School of Enterprise and the Environment in partnership with the Green Economy Coalition.