Natural Capital

Context

The depletion of a country's natural capital hinders poverty reduction and sustainable development objectives. Environmental assets, such as timber or fisheries, and ecosystem services, such as water filtration and carbon sequestration, are critical for human well-being and provide significant economic and social benefits.

The World Bank estimates that the global economy could lose $US 2.7 trillion by 2030 (compared to business as usual) if certain ecosystem services collapse (pollination, carbon sequestration and storage, fisheries and timber provision). In low-income countries, GDP could decline 10% annually on average, with higher losses in countries particularly dependent on ecosystem services.

Understanding the value of a country's environmental assets is the key to sustainable development and economic growth. 

Wealth

Wealth accounting—the balance sheet for a country—captures the value of all the assets that generate income and support human well-being. Gross domestic product (GDP) indicates how much monetary income or output a country creates in a year; wealth indicates the value of the underlying national assets and therefore the prospects for maintaining and increasing that income over the long term. GDP and wealth are complementary indicators for measuring economic performance and provide a fuller picture when evaluated together. By monitoring trends in wealth, it is possible to see whether GDP growth is achieved by building or maintaining capital assets, which is sustainable in the long run, or by liquidating assets, which is not. Wealth should be used alongside GDP to provide a means of monitoring the sustainability of economic development.

World Bank research finds that our material well-being is under threat: from unsustainable exploitation of nature, from mismanagement and mispricing of the assets that make up national wealth, and from a lack of collective action at local, national, and regional levels.

In many countries, GDP is increasing at the expense of total wealth and future prosperity. If not properly informed, citizens might mistakenly expect their improving prosperity to continue indefinitely. If rising GDP today comes at the expense of declining wealth per capita, then prosperity will be unsustainable. Economic growth will erode its own base.

Last Updated: Sep 15, 2023

Our goal is a world where measuring and valuing natural resources lead to better decisions for development. We believe that by measuring and valuing natural capital, we can support better decisions for the management of landscapes and natural assets.

To achieve such goal, the World Bank Group has set up the Global Program on Sustainability (GPS), an umbrella program on natural capital, ecosystem services, and the economics of sustainability. The objective of GPS is supporting the production and use of high-quality data, analytical tools and technical assistance for measuring and valuing natural capital and ecosystem services, thereby informing decisions by governments and financial markets.

Structured around three inter-connected pillars (global data and analytics, country level support and sustainable finance), GPS builds on the experience of the WAVES and WAVES Plus Partnership (Wealth Accounting and the Valuation of Ecosystem Services (WAVES), which started in 2013 to support a first cohort of countries in integrating natural capital and ecosystem services in the development process. Between the two programs, there are activities completed or underway in over 40 countries around the World (Figure 1).

To support the development of the Kunming-Montreal Global Biodiversity Framework (adopted at the 15th meeting of the Conference of the Parties to the convention on Biodiversity in December 2022) GPS completed an analytical and engagement activity, called “The Road to Kunming”. The objective was to articulate a new, evidence-based narrative on the key role played by nature in development, and on polices required to sustain that role. The work resulted in the production of three reports (in order of publication): (1) Mobilizing Private Finance for Nature, (2) The Economic Case for Nature, (3) Unlocking Nature-Smart Development: An Approach Paper on Biodiversity and Ecosystem Services. These three reports broke new ground on the economics of nature, identified options to mobilize finance for biodiversity, and defined priority areas for the World Bank Group’s engagement in supporting nature-smart development. In addition, the reports provided the basis for the three policy briefs on Nature and Development that were launched at COP15.

Last Updated: Sep 15, 2023

From a baseline in 2010 when Natural Capital Accounting (NCA) was mostly limited to high-income countries, the World Bank’s work though WAVES, WAVES Plus and now GPS, has demonstrated that it is possible to develop accounts in low and middle-income countries and use these accounts to inform national development plans and policies. Since 2010, the World Bank has engaged in over 30 countries (or sub-regions) on Natural Capital. 

WAVES Plus

Work in the “Core Implementing Countries” supported by WAVES Plus is complete. Thanks to the program, Egypt, Morocco, Uganda and Zambia have made important progress to better measure and value their natural capital and use that information for decision making. Examples include Egypt’s use of solid waste accounts to optimize the design of facilities for waste sorting and for evaluating cost recovery options for solid waste management. In Morocco, fisheries accounts have provided underpinning to a large World Bank program for results on the blue economy. In Uganda, WAVES Plus work (including the land and water accounts) has informed the 3rd National Development Plan and the World Bank project “Investing in Forests and Protected Areas for Climate-Smart Development“. Finally, in Zambia, work on natural capital accounts has been used to inform the Eighth National Development Plan and the World Bank project “Transforming Landscapes for Resilience and Development”; and has prompted the decision to include funding for further work on accounts in the 2021 National Budget.

GPS

Some examples of GPS work include projects in Ghana and Ethiopia where the program’s support includes developing accounts on land and ecosystem services to help design Payments for Ecosystem Services schemes and prioritize ecosystem restoration areas to inform the implementation of several World Bank projects. In Nepal, GPS is supporting data work on forest extent and conditions, and on forest related income and livelihoods. This will inform the implementation of World Bank financing (including carbon markets transactions), as well as incentivizing sustainable management with the reform of forest-related fiscal transfers to local levels of government.

As demand continues to grow for data and tools that can help financial sector actors integrate sustainability metrics in their decisions – including natural capital data - the GPS sustainable finance pillar (III) has taken steps to produce such data and tools to be used by both public and private sector actors. This work ultimately aims to better internalize environmental risks and opportunities in financial markets and economic decision making. Pillar III research has fed into the work of several influential groups, including the Coalition of Ministers for Climate Action and the Network for Greening the Financial System (NGFS). 

Sovereign ESG Data Framework: The new portal is now home to 71 ESG indicators, which form the Sovereign ESG Data Framework, along with 40 additional indicators, which span 60 years and 217 economies. The framework incorporates data relevant to all 17 Sustainable Development Goals across three pillars – Environment, Social and Governance – which the World Bank considers crucial for financial representatives to consider when assessing the contribution of investments or policies to sustainable development. The current set of indicators was selected based on surveys with market participants, the World Bank’s own policy analysis and expert teams, and the availability, coverage, and timeliness of data.

The updated portal includes new environmental indicators on water stress, coastal protection, forest cover loss, heating and cooling degree days, precipitation anomalies. The governance pillar now includes a new indicator on economic and social rights. Furthermore, the portal also offers additional data that is relevant to ESG considerations. For instance, the portal shows how each country’s land cover has transitioned over time using satellite data from the European Space Agency. It also allows users to explore each country’s wealth accounting profile, which reflects each country’s “balance sheet” in terms of long-term natural, produced and human capital.

Last Updated: Sep 15, 2023