Growing Number of Countries Factoring Nature's Value into Economic Decisions
April 22, 2013
- Countries around the globe are now recognizing that their natural assets – forests, water, land, minerals and energy sources – contribute vast wealth to their economies.
- These first-movers are committing to undertake natural capital accounting as a way of factoring nature’s services into economic decision-making, where it traditionally had gone unaccounted for in measures like GDP.
Forests are often described as the "lungs of the Earth," but oxygen generation is just one function they perform in their complex relationship with the atmosphere and people. They also help regulate air quality, soak up rainwater and recycle it, prevent soil erosion, and maintain the climate by storing large quantities of carbon.
Despite this multi-tasking, the value of forests is only measured in a country’s national accounts by the timber and fuel they provide. The total contribution of forests to other sectors of the economy is either invisible or undervalued.
Governments around the globe are now recognizing that their natural assets – forests, water, land, minerals and energy sources – contribute vast wealth to their economies, and they are committing to undertake natural capital accounting as a way of factoring nature’s services into economic decision-making, where it traditionally had gone unaccounted for in measures like GDP. Government statisticians also have a new tool from the UN Statistical Commission to help them calculate the total stock of natural assets in their countries and how these contribute to overall wealth.
A growing group of first-movers
More than 35 government ministers, vice-ministers and senior officials of finance, development and environment came together for a high-level ministerial dialogue on natural capital accounting on April 18 on the sidelines of the World Bank-IMF Spring Meetings. They are part of a larger group of more than 60 countries, the "first-movers" on natural capital accounting, who are sharing technical know-how and the set-up of institutions needed to move the process forward.
“Natural resources are the base upon which all wealth is built,” said World Bank Vice President for Sustainable Development Rachel Kyte, who chaired the meeting. “Countries recognize that they cannot make difficult choices on development or achieve green and inclusive growth without the data to show how economic growth depends on natural assets. Natural capital accounting provides the data needed at every cabinet table to make these choices.”
The use of natural capital accounts is gaining momentum. Botswana, Colombia, Costa Rica, Denmark, Finland, France, Gabon, Namibia, Kenya, Philippines, and Rwanda are just a few of the countries leading the growing global community of practice on uses of natural capital accounting.
In many parts of the world, natural capital accounting is already being used as a crucial tool in making smart economic decisions:
- Kenya developed forest accounts to understand the contribution that forests make to GDP.
- Canada, the Netherlands, and Norway undertake annual energy accounts to plan for economic growth while reducing carbon emissions.
- Botswana has compiled water accounts to help plan for the country’s economic diversification and growth. They show that 45 percent of the country’s water currently goes to agriculture, which provides just 2 percent in return to GDP.
- Australia compiles water accounts to help it manage this scarce resource more effectively.
In the Philippines, the government has committed to taking stock of mineral assets before continuing business as usual.“We are not issuing new mining contracts until we have a full account of our stocks on minerals,” said Ramon Paje, secretary of the Department of Environment and Natural Resources.
Rwanda is set to launch the second phase of its Economic Development and Poverty Reduction Strategy, and natural capital accounting is part of it. Namibia wanted to know the contribution of natural resources to its economy and has started work on wildlife and fishery accounts.
Natural resources are the base upon which all wealth is built. Countries recognize that they cannot make difficult choices on development or achieve green and inclusive growth without the data to show how economic growth depends on natural assets.
Private sector has a role
At the meeting, ministers and policy makers discussed ways to mainstream natural capital accounting, including: working across ministries to ensure full government support; bringing in the public and private sectors; and supporting and exchanging information and challenges with each other through regional and annual gatherings.
The private sector is a key component of this work. The International Finance Corporation (IFC), part of the World Bank Group, is launching a natural capital program to create new methodologies and tools in collaboration with private companies. These will allow the private sector to measure, manage, report, and potentially value natural capital.
"Sound natural capital management goes hand in hand with benefits for companies, communities, and the environment,” said Usha Rao-Monari, director of Sustainable Business Advisory at the IFC. “Companies that take natural capital into account can save on resource use, access markets and financing, and mitigate major environmental and social risks," she added.
The World Bank is supporting countries as they mainstream natural capital into national accounts and develop planning through a global partnership called WAVES (Wealth Accounting and the Valuation of Ecosystem Services).
The WAVES partnership includes the United Nations Environment Programme, the United Nations Development Program, and the United Nations Statistical Commission; Botswana, Colombia, Costa Rica, Madagascar, and the Philippines, which are implementing programs; as well as several counties that are providing technical and financial support.
A global action plan on NCA that lays the framework for its wider uptake was discussed at the meeting. It includes intensive support from partners and aims to build on the work already being done at the country level.