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

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?  For instance, land accounts can provide a clear picture of how land is used by different sectors and communities, and identify which use can contribute to economic growth. Water accounts can help decide how to allocate water effectively and equitably over the long-term, especially where low supply requires some trade-offs. Energy accounts can tell us who will be impacted if energy subsidies are removed. If a government wants to introduce carbon tax, accounts can tell us who will be affected and how to offset the losses.

Accounting for natural capital could also change the way decisions are made in the private and financial sectors, and thus have far-reaching consequences for both people and the planet by sustaining long-term growth.

In the last few years, we have seen a remarkable increase in the number of countries that are implementing natural capital accounting, from EU countries to Canada, Australia and several developing countries in Latin America, Africa and East Asia. The World Bank leads a global partnership called the Wealth Accounting and the Valuation of Ecosystem Services (WAVES) that works with eight countries on implementing NCA. The challenge now is to not only increase the number of countries implementing NCA, but also to ensure that accounts are effectively used by policy makers to safeguard the long-term health of their countries’ economies. This is especially important for developing countries, where natural capital makes up over a third of total wealth.  

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.