Principles of Natural Capitalism: Definitions, Assumptions, and Applications

Principles of Natural Capitalism: Definitions, Assumptions, and Applications

Physicist Amory Lovins, environmentalist L. Hunter Lovins, environmentalist and entrepreneur Paul Hawken wrote the 1999 book on environmental economics “Natural Capitalism: Creating the Next Industrial Revolution” to describe a conceptualized global economy that is dependent on the resources and ecosystem services that nature provide.

What is Natural Capitalism: Definition, Principles, and Applications

Background of the Concept

In their Harvard Business Review article, first published in 2007, the authors noted that the ability of the earth to sustain life and support economic activity has been threatened by the way modern societies export, process, transport, and dispose of a vast flow of materials.

They mentioned further that modern economic activities depend on two things: the utilization of natural resources and ecosystem services. Of course, these are two different things. Natural resources pertain to raw materials used in production while ecosystem services are the different benefits human societies gain from the natural environment.

A 1997 journal article published by Nature and penned by ecological economists Robert Costanza et al. revealed that the value of all ecosystem services is at least USD 33 trillion a year. In addition to the value of natural resources, the modern global economy and societies are dependent on the provisions provided by nature. Both collectively represent the natural capital out of which other forms of capital are made.

Nevertheless, considering the negative environmental impacts of modern economic activities, “natural capitalism” is a critique of industrial capitalism and traditional economic systems. Lovins, Loins, and Hawkins explained that the modern economy practices flawed accounting principles that merely liquidates income and calls it income while failing to take into account and assigning the value of natural resources and ecosystem services.

The conceptualization of natural capitalism fundamentally acknowledges the critical and inseparable relationship between production, the utilization and consumption of human-made capital, and the supply of natural capital. Only by factoring the natural capital in the equation can guarantee the continued survival and growth of economies and societies.

Six Fundamental Assumptions

• The following are the fundamental assumptions of natural capitalism posited by A. Lovins, L. H. Lovins, and P. Hawken:

• The future of economic development rests on the availability and functionality of natural capital. Life-supporting services obtained from nature that have no substitutes and currently have no market value limit economic development.

• There are three primary causes of the loss of natural capital: misconceived or poorly design business systems, population growth, and wasteful patterns of consumption. Achieving a sustainable economy means addressing these three.

• Democratic and market-based systems of production and distribution can provide the best environment for future economic progress. These systems fully value all forms of capital such as human, manufactured, financial, and natural capital.

• Radical increases in resource productivity are one of the keys to the most beneficial employment of people, money, and the environment. Resource productivity maximizes the value of goods and services obtained from the expenditure of unit resources.

• Improving the quality and flow of desired services delivered, instead of simply increasing the total cash or earning flow, will best promote and serve human welfare. This means producing and distributing relevant goods and services.

• The sustainability of the economy and environment depends on redressing global inequities of income and material well-being. Disparities in income and a range of economic concerns should be addressed.

Apart from the aforementioned, the following are the recommended approaches for implementing natural capitalism:

• Increase the productivity of natural resources: There is a need to maximize and stretch the usability of natural resources to five to a hundred times further to reduce the wasteful and destructive flow of resources, as well as to reduce initial capital investment. Doing so would need fundamental changes in production and the redesign of traditional factors of production.

• Shift to biologically-inspired production models: A recommended production model would be based on natural systems. This model mimics the closed-looped characteristic of nature in which outputs either return harmlessly to the environment or become inputs for manufacturing another product.

• Move to a service-and-flow business model: The manufacturing industry and other related sectors use a business model that rests on the sales of goods. Business owners should focus more on providing value rather than the actual end-product. This means measuring the usability and relevance of a particular product by how much value it provides to end-use consumers.

• A strong need to reinvest in natural capital: Most resources from nature and services from the environment are finite and limited. Businesses must channel their financial and other resources in natural capital to restore, sustain, and expand further the ecosystems. Doing so would enable abundant production.

Applications of Natural Capitalism

Remember that natural capitalism is a concept that criticizes industrial capitalism and traditional economic systems. The definition and principles outlined in this concept can be used as a framework intended to move from the traditional linear economic system through the design and implementation of a circular economy.

Note that a circular economic system is a proposed system and a specific model of production that aims to reduce or eliminate waste output through the continual use of finite resources. The general definition and principle of natural capitalism adhere to the same goal.

More specifically, the fundamental principles and the recommended approaches to application detailed above can provide a structure to guide policymakers, industry leaders, and community influencers in deploying a closed-loop economic system.

It is also interesting to note that the concept is also aligned with the principles of other related concepts. These include the Cradle to Cradle Process, which provides a model for eliminating waste, regenerative design, which is a whole systems approach to design that takes into consideration the need to promote the regeneration of the natural environment, and upcycling, which is a form of recycling aimed at repurposing discarded products.

Considering how it intends to align modern economic and human activities with the protection and promotion of nature, the main benefit of natural capitalism, especially when deployed in the modern economic system, centers on the promotion of business and environmental interests. The concept effectively aims to accomplish a win-win solution for pressing human-induced environmental problems.


  • Costanza, R., d’Arge, R., de Groot, R., Farber, S., Grasso, M., Hannon, B., Limburg, K., Naeem, S., O’Neill, R. V., Paruelo, J., Raskin, R. G., Sutton, P., and van den Belt, M. 1997. “The Value of the World’s Ecosystem Services and Natural Capital.” Nature. 387(6630): 253-260. DOI: 1038/387253a0
  • Lovins, A., Lovins, L. H., and Hawken, P. 2007. “A Road Map for Natural Capitalism.” Harvard Business Review. Available online
  • Lovins, A., Lovins, L. H., and Hawken, P. 1999. Natural Capitalism: Creating the Next Industrial Revolution. Little, Brown & Company. ISBN: 978-0-316-35316-8