21 December 2020

A new system of accounting that shows both economic and environment data is expected to be adopted by the United Nations Statistical Commission at its 2021 session in March. Experts say the move could lead to better decisions for a sustainable recovery from COVID-19 and for the challenges of biodiversity loss and climate change.

The adoption of the new system—the System of Environmental Economic Accounting – Ecosystem Accounting—would usher in a new era in measuring progress and wealth, one that goes beyond the current standard of Gross Domestic Product (GDP), to measure the contribution of nature to our well-being.

The problem, according to leading experts speaking at an event hosted by the UN Department of Economic and Social Affairs, the Bennett Institute for Public Policy at the University of Cambridge and the Federal Ministry for Economic Cooperation and Development of Germany, is that present economic statistics omit critical information about the state of ecosystems and societies that underpin the economy.

“After the Second World war, we assumed that if we got the economics right, everything else would fall into place,” said UN Chief Economist Elliott Harris. “We've seen that that is simply not true. The measure of economic prosperity that we've been using doesn't allow us to understand how we're doing on the social and environmental dimensions.”

Until now, the economy and the environment have been regarded as being in different spheres, said Diane Coyle, Bennett Professor of Public Policy at the University of Cambridge. But the imperative for sustainability “is that you have to think about the future.  We have to embed sustainability in decision-making.”

The experts warn that while a statistic such as GDP does a good job of showing the value of produced goods and services, it does not show the true value of assets that will be handed to the next generation. GDP does not reflect the degradation of natural capital, such as the deterioration of air quality or the loss of a forest. Economists call these unaccounted for spillover effects externalities.

It is estimated that human activity has severely altered 75 per cent of the planet’s terrestrial – and 66 per cent of its marine environment, leading to a 47 per cent decrease in ecosystem extent and condition indicators, compared to their natural baselines.

“Externalities are so perfidious because they are hidden,” said UN Chief Economist Elliott Harris. “This system exposes them to clear scrutiny.  It is a major step in the right direction.”

The result is that present economic statistics show that more people are living better today than ever before, but do not reflect increasing environmental pressures – climate change, pollution, and biodiversity loss – that are undermining progress. A failure to recognize humanity’s greatest assets – nature – in official statistics will ultimately slow progress towards a sustainable, resilient future.

“We want to know if we are better off today than before,” said Sir Partha Dasgupta, Professor at the University of Cambridge. “That is the basis of sustainability—to see if wealth goes up or down.”

There are real challenges that need to be met, Dasgupta said, including accurately valuing goods and services that are not sold in markets and communicating the value of accounting for natural capital to policy makers. Policy makers are used to the well-established accounts behind GDP which focus on flows of economic activity rather than stocks or assets. However, he believes there is a real need for change. “It is absolutely essential to have accounts for natural capital assets,” said Dasgupta, “The entire future is reflected in the assets you’ve got.”

Already, more than 30 countries have tried this new system. Most recently, Brazil, China, India, Mexico and South Africa have tested this new method of accounting under the EU‑funded project Natural Capital Accounting and Valuation of Ecosystem Services.

These countries will have an advantage as they begin their recoveries from the COVID-19 pandemic, as there is growing recognition that new measures are needed to move beyond GDP and towards a system that considers all of society’s assets – natural, human, social, and institutional – that harnesses their interdependencies, and delivers the 2030 Agenda for Sustainable Development.

The new initiative would provide high-quality, rigorous data on biodiversity, ecosystems and the environment-economy that could guide decision-making on key projects and policies.

For further information, see

How Natural Capital Accounting Contributes to Integrated Policies for Sustainability and associated reports (United Nations, 2020); and

Building Forward: Investments in a Resilient Recovery (Agarwala, et al 2020).

The Dasgupta Review on the Economics of Biodiversity (HM Treasury, 2020).

Information on the event can be found at https://bit.ly/MakeNatureCount

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