There Is No Prosperity Without Natural Capital
Natural resources are neither free nor boundless. The time has come to challenge our conception of the relationship between the economy, society, and the environment and how we measure well-being and social progress. A new system takes the contributions of nature into account when analyzing economic development. It can be a game-changer for decision making processes.
Conservationists and environment officials hope new UN standards that also account for the value of natural capital can help governments slow the rapid decline of plant and animal species worldwide.
The UN has adopted a new system that takes the contributions of nature into account when analysing economic development. The new framework — the System of Environmental-Economic Accounting — Ecosystem Accounting (SEEA EA) — was adopted by the UN Statistical Commission and is a major step in leaving behind the supremacy of Gross Domestic Product (GDP) as the universal indicator of wealth and prosperity, which has dominated economic reporting for over half a century.
More than just GDP
GDP is the most commonly used metric to rank the development and wealth of countries. GDP amounts to the total monetary value of all the services and finished goods produced inside a country over a given period of time and hence gives an indication of the country’s economic condition. However, this focuses on monetary value and ignores other valuable indicators such as happiness, human wellbeing and environmental conditions.
Experts indicate that although GDP is extremely effective in accounting for the value of goods it fails to show the interdependency of nature and the economy and the impacts of said value on nature, which can be anything from the deterioration of water and air quality to the loss of forests.
Other indicators have been developed to account for these shortcomings. Some examples include the Human Development Index (HDI) — which is a combined statistic of education, life expectancy, and per-capita income — and the Genuine Progress Indicator (GPI) — which measures the prosperity of a country by addressing economic, ecological and social factors that are not included in GDP.
However, in the face of the continuing climate crisis the UN has proposed a new framework that focuses on the environment and how economic development can either contribute to or impinge on the surrounding environment.
Counting nature and the economy together and in the same framework “will allow us to see how our economic activities affect nature, and how the presence of nature affects us as individuals, societies and species,” says Elliot Harris, UN Chief Economist, also adding that by doing so, we can help influence change “to achieve prosperity without damaging or destroying nature in the process”.
A view that has been supported by experts. In February 2021, Cambridge University economist Partha Dasgupta released a review on the economics of biodiversity, claiming there is need to ascribe economic value to ecosystems and the service that they provide through a recognition that economic activity is “embedded” in nature.
“We take for granted all that nature provides,” claims Brian O’Donnell, director of the Campaign for Nature, an organisation that works with scientists, indigenous people and conservation groups.
A new framework
The SEEA EA framework was adopted by the UN Statistical Commission and represents a key step in the direction of including natural capital such as forests, wetlands and other ecosystems in economic reporting and therefore influencing measures of wealth and development.
With the adoption by the U.N. Statistical Commission, the new accounting system is a recognition of a global push to protect the natural world and respond to the ongoing climate crisis.
UN Secretary-General António Guterres commented the adoption of the new economic and environmental framework: “This is a historic step forward towards transforming how we view and value nature. We will no longer be heedlessly allowing environmental destruction and degradation to be considered economic progress.”
Likewise, Inger Andersen, UNEP Executive Director claimed that: “This is a major step forward. The new framework can be a game changer in decision-making. By highlighting the contribution of nature, we now have a tool that allows us to properly view and value nature. It can help us bring about a rapid and lasting shift toward sustainability for both people and the environment.”
In simple terms, the U.N. accounting framework helps measure two key things in physical and monetary terms: the “stock” of nature, such as the extent of forest cover and wetlands, and its “flows” — the benefits derived from nature, including water purification and carbon sequestration.
By way of example, forests play a role in providing communities with clean water, serving as natural water filters with trees, plants and other characteristics, such as soil depth, that help absorb nutrient pollution like nitrogen and phosphorous before it can ﬂow into streams, rivers and lakes. Factoring these contributions into their value will mean that they are given a much higher economic standing and therefore contribute to their conservation.
“Nature, and the contribution of these ecosystems to our prosperity and well-being, will finally be reflected in our balance sheets,” explains Harris.
Already in use
The United Nations reports that over 34 countries are already including “natural capital” in their measurements on an experimental basis, some of which have even brought environmental benefits into their decision-making in a more significant way. An example is New Zealand’s “well-being budget”, which has a specific goal to transition to a sustainable economy.
“What this does is actually start to define what we mean by natural capital more clearly,” says Mark Gough, chief executive of the Capitals Coalition.
According to a study published in the Nature Sustainability journal benefits of preserving nature, such as reducing carbon emissions, producing water and boosting resilience to extreme weather, actually exceed the value of exploiting it.
The study looks at the monetary worth of each site’s “ecosystem services”, such as carbon storage and flood protection, as well as likely dividends from converting it for the production of goods such as crops and timber.
In one example, if Nepal’s Shivapuri Nagarjun National Park were turned from forest into farmland it would create an $11-million annual deficit by cutting carbon storage 60% and water quality 88%, researchers estimate.
The SEEA EA is already in use and has been deployed in a variety of policies and decision making processes that support the global sustainability agenda. In Indonesia, carbon accounts have been used to assess the impacts of changes in peatland ecosystems and in South Africa, ecosystem extent and condition accounts for rivers have informed the National Water and Sanitation Master Plan.
The new framework is important not only for the value that it ascribes to nature but also in the questions that it raises for decision makers. It challenges our conception of the relationship between economy, society, and the environment and how we measure well-being and social progress.