Development Dialogue: Can Accounting for Natural Capital Be a Game-Changer for Development?

The idea of going “beyond GDP” is not new: For over 30 years, economists have been advancing methods for valuing natural capital. It gained new momentum when the methodology for calculating Natural Capital Accounts (NCA) became a standard with the UN Statistical Commission’s adoption of the System for Environmental and Economic Accounts (SEEA) in 2012.

There is growing consensus that GDP is not the best indicator of a country’s true economic status. One major limitation is the poor representation of natural capital. Important contributions to the economy made by forests, wetlands, and minerals are not fully captured in national accounts or may be hidden. For example, in forests—timber resources are counted in national accounts, but carbon sequestration as a service provided by forests is not included. What if countries started using accounts to inform their development policies? Could this be a game-changer in development?

Join us to discuss the advantages of NCA in crafting policy, and possible strategies for promoting its use in making evidence-based decision-making in the public and private sectors, towards the goal of sustainable development.  

Bill Rahill, Director, Environment & Natural Resources Global Practice, World Bank Group, Moderator, on the urgent need to scale up our efforts and ensure natural capital accounting is a core component of our toolkit.

Bill Rahill is Director, Environment & Natural Resources Global Practice, of the World Bank Group. In his role, he oversees a large portfolio of the Bank’s operations, analytical activities, and programs around landscapes, forests, watersheds, fisheries, pollution, biodiversity, environmental economics and natural capital, as well as implementation of the World Bank environmental Safeguard policies.

Previously, Bill was a Senior Manager in the Environment, Social and Governance Department of the International Finance Corporation, the private sector arm of the World Bank Group, a position he held from 2010 to June 2014. He joined the World Bank in 1993 as an Environmental Specialist/Team Leader, managing the Bank’s Montreal Protocol Operations. He subsequently was Country Officer for Papua New Guinea in the East Asia and Pacific Region, before assuming the role of Senior and then Lead Environmental Specialist in the South Asia Region, where he managed a portfolio of lending and analytical activities with a focus on energy, environment and global issues. Bill spent five years in the World Bank’s New Delhi office where he oversaw the environmental aspects of the India program. Bill then joined IFC as Manager in 2007 and worked on the review and update of IFC’s Sustainability Framework and Performance Standards among other things.

Before joining the Bank, Bill worked for IBM Canada as an Environmental Engineer and subsequently as Project Director for Lavalin Environment. Bill holds a B. Eng in Chemical Engineering, a MBA in Management, a M.Sc. in Finance, and a M.Sc. in Public Policy.


Bill: I’ve just wrapped up my participation in the Stockholm Summit on Natural Capital. I’m sitting in the Lufthansa lounge in Frankfurt (a place I know a little too well!!) thinking about the incredible people I met and the unwavering commitment to change how we manage our natural assets. I was struck by the amount of work that is ongoing and the growing commitment to more fully integrate natural capital in our decision-making. The study of natural capital is no longer a largely academic, somewhat esoteric, endeavor. The policy, practice and scientific underpinnings of natural capital have evolved incredibly fast, and a growing part of the dialogue is now on how to more effectively deploy tools and instruments to develop significant use cases to help leverage a transformational change in decision-making across the public, private and financial sectors. While we’ve come a long way in a relatively short period of time, there are numerous challenges, barriers and risks ahead as we move the agenda forward in what has become a fairly crowded space, in some respects, with as yet little alignment on definitions, scope, approaches, among other things. This complexity must not undermine our efforts to collaborate more effectively to support an urgent need to scale up our efforts and ensure that natural capital accounting (NCA) is a core component of our toolkit and broader natural capital considerations are mainstreamed into our decision-making.

I believe that by leaving out the natural wealth and services that underpin the proper functioning of our economies – from forest resources to the ecosystem services that protect and stabilize our environments – our current approach to decision-making is unsustainable.

NCA could be a game-changer in how we consider policy-making in a world of competing demands and financial constraints. Not only does it take a long-term view to planning, but it has the potential to improve how equitably and effectively resources are allocated by the public, private, and financial sectors, with significant implications for poverty alleviation and social development outcomes more broadly.

At the World Bank, we are committed to supporting ever-growing demands from countries to implement NCA. We also use our convening power to bring many different stakeholders into the discussion, including finding synergies between public, private and financial sectors.

I am also very pleased that the financial sector is already at the table and actively participating in the discussion. I have the pleasure and honor to be a member of the Steering Committee for the Natural Capital Declaration (NCD) – a finance sector initiative, endorsed at the CEO-level – where I work closely with colleagues to come up with practical strategies for integrating natural capital concerns into financial sector decision-making.

I would like to ask the panelists and readers: What would a world that fully implements natural capital accounting look like? How would it change the way we do business and invest in development? What are the key barriers that are preventing a more rapid mainstreaming of our decision-making systems?

In the closing session of the Stockholm Summit, participants recognized that we might be at the cusp of a more rapid transformation. What do you think?

I look forward to hearing a range of perspectives during this conversation, and I warmly welcome your participation.      

Will Turner, Senior Vice President & Chief Scientist, Conservation International, on the importance of natural capital accounting both for the present and the future.

Will Turner is Senior Vice President & Chief Scientist at Conservation International, where he oversees teams advancing natural capital accounting and mapping, social sciences, and environmental monitoring and evidence, among others. Dr. Turner’s research focuses on integrating our knowledge of biodiversity, climate change and socioeconomics to safeguard nature and support the billions who depend on it. A native of Austin, Texas, Dr. Turner studied computer engineering at The University of Texas and earned his Ph.D. in ecology and evolutionary biology from the University of Arizona. His writings include both popular and scientific articles on topics such as climate change, ecosystem services, sustainable development, monitoring and evaluation, animal behavior and the relationship between nature and human societies.

 

Will: There is little doubt that we must sustain natural capital if we are to achieve a poverty-free, prosperous world in the future. Unchecked, today’s destruction of ecosystems will lead to tomorrow’s droughts, floods, salinized soils, uncertain food supplies, and resource conflicts. In the future, all of these will continue to hit poor populations the hardest.

But poverty is also an acute problem now. From individual farmers and fishers to regional banks and global businesses, people perceive stark choices between generating food or profit to meet current needs versus sustaining natural capital for the future. The central challenge is that those who benefit from forests, coral reefs, and other essential ecosystems are often in different places (or different times) from those who steward ecosystems and pay the opportunity costs of their conservation. This disconnect lies at the heart of our greatest global challenges. And there might be no tool more foundational for addressing this disconnect than natural capital accounting.

Natural capital accounting takes the essential but hidden benefits of nature and makes them tangible. Mapping and accounting for nature, and integrating it directly into the tools that governments, businesses, and communities already use, is a prerequisite for reconciling needs for both near-term and long-term prosperity. While substantial challenges remain – in scaling, creating rigorous standards while supporting national readiness, coordinating across sectors, and above all integrating accounts as a core of decision processes – recent efforts in natural capital accounting could not come at a more important time, and must be redoubled.

Jacqueline McGlade, Chief Scientist and Director of the Division of Early Warning and Assessment, UNEP on the increasing recognition that protecting and valuing natural resources will become the backbone of future economic development.

Professor Jacqueline McGlade is currently UNEP Chief Scientist and Director of the Division of Early Warning and Assessment. She is on leave from University College London, where she is Professor in Environmental Informatics in Earth Sciences. Prior to this she was Executive Director of the European Environment Agency, Director of the Centre for Coastal and Marine Sciences of the UK Natural Environment Research Council, Professor of Biological Sciences at the University of Warwick, Director of Theoretical Ecology at the FZ Jülich and Senior Scientist at the Bedford Institute of Oceanography in the Federal Government of Canada. She has held a number of key participatory and advisory roles including as Board Member of the Environment Agency for England and Wales and the European Bank for Reconstruction and Development, Trustee of the Natural History Museum, and is a member of a number of environmental prize juries.

Her activities and research continue to be focused on the dynamics of ecosystems and planetary systems, sustainable development and the governance of natural resources, environmental informatics with particular reference to the development of smart systems for environmental monitoring and observation, socio-economic transitions and policy analysis. She has published over 200 peer-reviewed papers, articles, books, plus government reports and legal submissions to the International Court of Justice and produced and presented award winning feature films (Planet RE;think, One Degree Matters, Our Arctic Challenge), TV (Blue Revolution, Power of Nature, The Next Big Thing, Chaos) and radio series (Ocean Planet, Learning from Nature, King John’s Treasure). As founder of her own software company, she has developed many software systems, games and applications particularly in the area of fuzzy logic and decision-making under high uncertainty (including SimCoast, Flood Ranger).

Professor McGlade is a fellow of two learned societies (FLS and FRSA), has received international prizes, honours and honorary degrees in the Czech Republic, Germany, Italy, Monaco, Romania, Sweden, UK, the USA and various global and regional institutions and professional associations. She was the GSDI Global Citizen 2013. Her educational degrees include BSc (Hons) Marine Biology, Biochemistry and Soil Science, University College of North Wales; PhD Aquatic Sciences and Zoology, University of Guelph, Canada; MA University of Cambridge.

 

Jacqueline: Macroeconomic models are broadly based on the assumption that economies are built on assets including manufactured capital, human capital and institutions. The natural environment, the ecosystems and the services they provide are generally bypassed when it comes to economic transactions and calculations of costs and benefits. This represents a significant gap in one of the most quoted economic headline indicators, i.e. the Gross Domestic Product (GDP). However, there is an increasing recognition that protecting and valuing natural resources such as forests, estuaries, fisheries, fresh water resources, wetlands, will become the backbone of economic development in the future. This has practical implications in terms of measuring and assigning values.

Natural capital accounting is an integral part of this new way of thinking and decision-making. Accounting may not seem very exciting, but it’s fundamental to how governments operate. In my previous role as Executive Director of the European Environment Agency, I helped to institute the system of economic-environmental accounts (SEEA). Through the framework of SEEA, countries are able to work with a different calculus about sustainable and healthy growth, while still within the context of an internationally approved accounting standard.

With the UN Sustainable Development Goals (SDGs) around the corner, now is the time to focus on methods such as natural capital accounting, so that countries and citizens have the means to measure our progress towards these goals. With that in mind, I’d like to ask the audience: How do you think data and natural capital accounting can help solve some of our biggest environmental and development challenges? What messages would you send to the team drafting the SDGs?

Marcos Mancini, Director, Sustainable Banking at Grupo Financiero Banorte, on understanding the dependencies between the financial industry and natural capital.

As Director of Sustainable Banking at Grupo Financiero Banorte, the third largest financial institution in Mexico, Marcos Mancini looks to develop innovative financial products that incorporate environmental and social components. Marcos is also in charge of developing different approaches for the bank to engage in the impact investing space. Marcos represents Banorte at the Sustainability committee of the Mexican Banking Association and at CESPEDES, the organization representing the World business Council for Sustainable Development in Mexico. He also belongs to the steering committee for the Central

America and Mexico chapter of the Aspen Network of Development Entrepreneurs (ANDE). He also teaches the Sustainable Finance module at the Banorte-Ixe/UNAM course. Marcos has consulting experience across several industries. He previously worked as a consultant on measuring and communicating sustainability value to accelerate the adoption of sustainability, integrating it into operations, and inspiring strategies to grow market share and increase profit margins. Marcos holds a dual MBA/MS degree from the University of Michigan (The Erb Institute for Global sustainable Enterprise) and an executive master’s in environmental management from EOI.

 

Marcos: Every year for the last decade, the World Economic Forum has published the Global Risks report, covering 28 global risks across five categories (economic, environmental, societal, geopolitical and technological) and surveying 800+ experts on how humankind can protect itself from the major threats affecting its stability. I find it extremely interesting that, since 2010, climate and natural capital-related risks have surpassed any other category in the top 10 list.

I became involved with natural capital early in my professional career as an environmental consultant, trying to make the business case for companies to take on certain actions to avoid, mitigate and/or compensate for the impacts of their operations. Later, through my graduate studies at the Erb Institute for Global Sustainable Enterprise at the University of Michigan, I became more involved in ecosystem services valuation and natural capital accounting.

Today, as a member of the Natural Capital Declaration (NCD), I work together with a group of extremely talented professionals and friends to understand the dependencies between the financial industry and natural capital; to incorporate natural capital into financial products and services across all asset classes; and to account for it and report on it. We believe that financial institutions are fundamental to national and global sustainable development efforts, and that natural capital accounting has the potential to be a game-changer in the way we do business and face these global systemic risks as a society. 

Rio+20 (2012) proved to be an “inflexion point,” where the role of GDP was questioned in light of sustainable development and the transition to a Green Economy. A major breakthrough was the UN Statistical Commission’s adoption of the System of Environmental Economic Accounting (SEEA) as a standard through which we can now not only measure natural resource stocks, but also the flow of ecosystem goods and services.

I applaud the World Bank for convening this multi-stakeholder initiative, to raise awareness of these issues and to better understand and value how our economic system depends on natural capital as we strive to end poverty and foster a more equitable and sustainable world. 

Neric Acosta, Philippine Presidential Adviser for Environmental Protection, Office of the President of the Philippines, on the importance of having a standard measure that links the economy, the ecology, and our environment.

JR Nereus Acosta is the Philippine Presidential Adviser for Environmental Protection, Office of the President of the Philippines, and serves in the Cabinet Cluster on Climate Change and Environment of President Benigno S. Aquino, III. Secretary Acosta also serves concurrently as the General Manager of the Laguna Lake Development Authority, which has jurisdiction as an environmental regulatory agency and government-owned corporation over 65 local government units in the National Capital Region and the greater CALABARZON (Cavite, Laguna, Batangas, Rizal and Quezon) Region.

Neric, as he is better known, is a academician, scholar and educator by training and profession, earning a PhD in Political Science as an East-West Center Scholar from the University of Hawaii in 1994 and becoming the first Filipino World Fellow of Yale University in 2004. He has taught public policy, political science, development management and environmental governance at the Ateneo de Manila University
School of Government, De La Salle University, Xavier University and the Asian Institute of Management. He finished his Bachelor's degree in political science from the University of the Philippines and a Master's in International Studies at the Indiana University of Pennsylvania, and completed two executive training and leadership programs at the Kennedy School of Government at Harvard University.

For three consecutive terms from 1998 to 2007, Neric was a member of the House of Representatives, representing his home province of Bukidnon. In Congress, he served as Chair of the Committee on Ecology and was principal author of the groundbreaking Clean Air Act of 1999 and several other laws on clean water, solid waste management, biodiversity protection and coastal resources. Neric sits in various national and international boards of development and non-government organizations addressing challenges in environment, population, climate change and governance.

In the 2010 national elections, Neric was one of the 12 senatorial candidates of the Liberal Party under then Presidential candidate Benigno Aquino, and served as Secretary-General of the Liberal Party from 2004 to 2007 and Secretary-General of the Council of Asian Liberals and Democrats from 2005 to 2013. Neric is married to Dr. Carina Chotirawe, professor of literature at the Thailand's Chulalongkorn University, and is a proud father of 19-year old, Inigo, a freshman at George Washington University in DC.

 

Neric: My country Philippines has seen consistent GDP growth in the last few years. However, rapid urbanization and non-judicious use of natural resources pose risks to the country’s progress and sustained economic prosperity. Additionally, the Philippines has faced the brunt of Typhoons Ondoy, Pablo and Yolanda, making climate change immediate and real for us.

Natural resources are a major source of our wealth - about a third of the country’s wealth comes from natural resources, and a vast majority of the country’s poor depend on natural resources for food and livelihood. It is important that we have a standard measure that links the economy, the ecology, and our environment.

Natural Capital Accounting is instrumental for managing a very vulnerable and a very high risk ecosystem like the Laguna Lake basin. The Laguna Lake basin is the epicenter for the country’s economy as almost 60% of national GDP is generated in the area. It provides multiple sets of uses and benefits -- water for drinking, fisheries, agriculture, and industries. It is important that we keep the balance between ecology and economic growth; and this is where accounting methods come in. In the end you cannot have an economy without the ecology.

For Laguna Lake basin, the ecosystem accounts will help analyze the impacts of sedimentation and pollution on the lake ecosystem. Degradation of the upland watersheds leads to soil erosion, which is washed into the lake, causing siltation and ultimately flooding. By costing the flood risk for the exposed municipalities, the ecosystem accounts can help inform disaster risk management and land use planning.

We are excited to be part of the WAVES partnership and slowly moving towards making accounts provide us critical information that we need to manage Lake Laguna. The challenge is – can the Philippines example be replicated by other countries? I would like to know more about your challenges and how we can deploy NCA as a useful tool.

New Question
What are the key barriers that are preventing a more rapid mainstreaming of our decision-making systems?