The RealValue of Natural Capital expresses the relationship of ecological stocks and flows at a point in time based on ecosystem extent, characteristics, and condition, in a common language, dollars.
Ecosystems, like it or not, are subject to the jurisdictional authority of place. They are integrated into our collective economic, legal, and social frameworks as real assets and real property.
In real asset valuation, the prevailing approach prioritizes the 'highest and best use' of a property, emphasizing the maximization of financial returns and profitability. To maximize profit, properties are developed based on what is legally permissible and physically possible, leading to significant land use changes to accommodate human use and consumption. This valuation paradigm results in the destruction of ecosystems and the loss of the benefits they provide.
In contrast, RealValue establishes the 'higher and better use' of real assets by emphasizing the importance of accounting for the benefits provided by nature and valuing natural capital in monetary terms. This approach presents a compelling alternative for determining how a 'property' should be utilized, juxtaposing short-sighted valuations with holistic assessments that consider the broader ecological context.
RealValue is comprised of and calculated based on two main components: Ecological Polygon and RealValues.
This is ecosystem that is being valued consisting of extent, characteristics, and condition.
These are the individual values of the Core Benefits converted to and expressed in dollar values.
RealValue is expressed via two metrics and one indicator:
- Stocks: real asset dollar ($) value at a point in time (lump sum metric). The stocks value is the 'real world' price, cost, or value of a polygon (the underlying real asset).
- Flows: annual economic and financial dollar ($/yr) values (annual metric). Economic values are referred to as Public Goods Values and financial values as Anthropocentric Values.
- Natural Capitalization Rate: expresses the relationship between the value of the stocks and flows. This indicator allows for comparison across polygons and ecosystems based on condition, intervention, and underlying real asset market values. Formula: Flows dollar value divided by Stocks dollar value equals the Natural Cap Rate (indicator).
The RealValue metrics and indicator can be linked to any assortment of ecological metrics, variables, indicators and indices, both quantitative and qualitative, to assess overall ecosystem state, function, and health including biodiversity.
Before diving into the details of Ecological Polygons and RealValues, here are some examples of RealValue and Natural Cap Rates.
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