The Real Capital framework bridges the gap between scientific insights and policy-making. It critiques traditional economic models for undervaluing non-monetary assets (e.g., ecosystems, social systems) and proposes a methodology to quantify and manage Natural, Built, Human, and Social Capital for sustainable decision-making.
The framework complements economic thinking, helping policy advisors qualify and quantify assets normally hard to measure in money.
THESE ARE THE Key Concepts OF THE FRAMEWORK
Real Capital Definition:
Assets used but not consumed in production (e.g., forests, infrastructure, human skills).
The Four Capitals:
- Natural: Ecosystems, minerals, climate systems.
- Built: Infrastructure, tools, technology.
- Human: Health, knowledge, skills.
- Social: Institutions, governance, cultural norms.
Capital Maturity:
A measure of capital’s ability to meet societal needs (e.g., ecological health, infrastructure sufficiency).
Methodology
- Systems Approach: Model capital as stocks/flows (e.g., forest regeneration rates).
- Normative Targets: Define maturity levels (e.g., “If biodiversity is valued, 33% of forests must be protected”).
- Asset-Liability-Equity (ALE) Tables: Adapt financial accounting to track non-financial capital (e.g., ecosystem degradation vs. restoration costs).
- Circular Economy: Align capital use with regeneration (e.g., recycling metals, renewable energy).
- Materiality: Identify actors responsible for capital depletion (e.g., transport sector’s fossil fuel use).
- Allocation/Equity: Prioritize resource use for public benefit (e.g., efficient transport over private vehicles).
Benefits of applying the framework to policy challenges
- Helps Holistic Decision-Making: Integrates ecological, social, and economic priorities.
- Policy Clarity: Quantifies gaps (e.g., “Forest equity is at 34% maturity; investment X is needed”).
- Risk Mitigation: Identifies “environmental insolvency” (e.g., industries unable to restore degraded capital).
The Real Capital approach offers a science-based, actionable alternative to GDP-centric models, aligning policy with planetary boundaries and societal well-being.
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All posts on Real Capital are posted in the Multi-Capital category on this site (Link)
Stephen Hinton Consulting 