Natural Capital Measurement and Applications in Economic and Financial Analysis1

ABSTRACT Natural capital refers to environmental assets that produce economic goods or services used in production or consumption. Today, the concepts of natural capital and the associated ecosystem service flows are being applied beyond their traditional applications in cost‐benefit analysis to a range of topic areas in economics and finance. These broader applications include assessment of physical risks to real estate, insurance, and supply chains, and advancements in modelling economic growth, productivity, and financial risk. These developments have the potential to shift perspectives on economic measurement to include more comprehensive concepts of output and consumption, increase the accuracy of measured productivity and risks, and add precision to our understanding of tradeoffs in resource allocation. We provide an overview of the economic theory underlying natural capital valuation and recent initiatives in natural capital measurement and discuss how new data sources, modeling advances, and frameworks are broadening the application of natural capital concepts and metrics. We include open questions integrated throughout to inform or prompt future scholarly research, model development, and economic measurement.