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Natural capital accounting

Natural capital accounting is the process of calculating the total stocks and flows of natural resources and services in a given ecosystem or region. Accounting for such goods may occur in physical or monetary terms. This process can subsequently inform government, corporate and consumer decision making as each relates to the use or consumption of natural resources and land, and sustainable behaviour.

Methods of accounting
There are several methods of accounting which aim to address the issue of sustainability. These are: large and eclectic dashboards; composite indices; indices focusing on overconsumption; adjusted economic indicators. Large and eclectic dashboards These dashboards bring together a number of indicators that are directly and indirectly related to the durability of socio-economic progress. One example of this is the Eurostat Sustainable Development Indicators, which is a list of over 100 indicators used to monitor the EU Sustainable Development Strategy. The criticism associated with these dashboards is that a large number of indicators risks muddling a clear message about sustainability that resonates with policy makers or citizens. In response, there has been a greater tendency to select headline indicators that "track central elements of green growth and [are] representative of a broader set of green growth issues." The explicit emphasis on sustainability makes these indices useful; however computing them by country fails to capture the global nature of sustainability. Monetary or physical indicators All sustainability indicators can be grouped broadly into two types. Specifically, they will be calculated in monetary terms, using one or more valuation techniques, or in physical terms. It is more likely for monetary indicators to be expressed as flows, and physical indicators as stocks. == Global initiatives ==
Global initiatives
General commitment by the international community to support the development of natural capital accounting was motivated early on by the Brundtland Report in 1987 and the 1992 Rio Summit. Many of the country participants expressed interest in developing accounting capacities for natural resources. While the SEEA-2003 and subsequent revisions being undertaken for 2013 have expanded the range of analyses within the framework, the purpose of the SEEA has remained the same. It is an accounting framework that records the stocks and flows that are relevant to both the environment and the economy. Its Central Framework comprises three main accounts that can be integrated with the existing United Nations System of National Accounts (SNA), and each focuses on a different aspect of the interaction between the economy and the environment: physical flow accounts; functional accounts for environmental transactions; and asset accounts in physical and monetary terms. The latest version of the SEEA (Q3, 2012) has two other parts, aside from the Central Framework: SEEA Experimental Ecosystem Accounts and SEEA Extensions. The Experimental Ecosystem Accounts, specifically, introduces an accounting framework for ecosystems, despite the fact that many of its relevant stocks and flows are centered on non-market assets. As well, the Working Group on Environmental Auditing, a subgroup of the International Organization of Supreme Audit Institutions, is working to improve auditing standards related to environmental issues. In March 2021, the United Nations Statistical Commission adopted the SEEA Ecosystem Accounting (SEEA EA) standard at its 52nd session. The SEEA EA is a statistical framework that provides a coherent accounting approach to the measurement of ecosystems. Ecosystem accounts enable the presentation of data and indicators of ecosystem extent, ecosystem condition, and ecosystem services in both physical and monetary terms in a spatially explicit way. Following its adoption, the Statistics Division of the United Nations Department of Economic and Social Affairs (UN DESA) in collaboration with the United Nations Environment Programme (UNEP) and the Basque Centre for Climate Change (BC3) released the ARIES for SEEA Explorer in April 2021, an artificial intelligence-powered tool based on the Artificial Intelligence for Environment and Sustainability (ARIES) platform for rapid, standardized and customizable natural capital accounting. The ARIES for SEEA Explorer was made available on the UN Global Platform in order to accelerate SEEA's implementation worldwide. In May 2025, Fordham University’s Gabelli School of Business adopted an ecological performance reporting framework developed by the private firm Intrinsic Exchange Group (IEG) to assess the value of natural assets. Based on the System of Integrated Environmental and Economic Accounting framework, this model was developed for use by natural asset companies in consultation with former FASB Chairman Robert Herz, leading accounting firms, and Fordham, in collaboration with IEG. The initiative includes the creation of an independent standards-setting body tasked with developing, maintaining, and overseeing global accounting and reporting standards for natural capital. Wealth Accounting and Valuation of Ecosystem Services Partnership The ability of developing countries to build their natural capital account capacities is being improved significantly through the Wealth Accounting and Valuation of Ecosystem Services Services (WAVES) partnership, by encouraging the development of relevant measurement frameworks. WAVES is global partnership that was inaugurated in October 2010 by World Bank President Robert Zoellick at the Convention on Biological Diversity COP-10 meeting in Japan. It aims to promote sustainable development by encouraging the inclusion of the values and contributions of natural capital in national accounts. Several projects have been initiated in developing countries such as Botswana, Colombia and Madagascar with a view to improving their capacity to implement the SEEA, in collaboration with UNEP, the UNDP, the United Nations Statistical Commission, and the financial support of NGOs and the governments of Australia, Canada, France, Japan, Norway and the United States. This approach is complementary with the proposal for nine planetary boundaries within which humans can safely operate, as advanced by Rockström et al. Both approaches emphasize the need to make the human enterprise compatible with one-planet constraints if we are to achieve global sustainability. While planetary boundaries aim to identify trigger points of phase shifts, Ecological Footprint accounting measures demand against regeneration - a threshold that can be exceeded for some time ("overshoot") without a phase shift. Inclusive Wealth Index The UN International Human Dimensions Programme has created an inclusive sustainability indicator, the Inclusive Wealth Index (IWI), which measures the productive bases of an economy: produced, natural and human capital, and based on these three assessments, calculates the trajectory of a country's wealth. The calculation of natural capital in the IWI is based on the shadow value of an economy's natural capital assets. A similar conceptual direction was taken by the Commission on the Measurement of Economic Performance and Social Progress, under the direction of economists Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi, at the behest of former French President Nicolas Sarkozy, in 2008. The authors concluded that a pragmatic measure of sustainability would combine an indicator based on the extended wealth approach, and a small dashboard of physical indicators. In May 2012, the Summit for Sustainability in Africa was held in Gaborone, Botswana. It also brought together leaders from ten African countries to discuss sustainable development planning, and in particular, to commit to a set of goals on fully accounting for natural capital, and integrating it into national planning, reporting and policies. This commitment took the form of the Gaborone Declaration for Sustainability in Africa Economics of ecosystems and biodiversity Four publications were presented at the CBD COP-10 by The Economics of Ecosystems and Biodiversity (TEEB) initiative: TEEB Ecological and Economic Foundations, TEEB in National and International Policy Making, TEEB in Local and Regional Policy, and TEEB in Business and Enterprise. These, along with an Interim Report released at the CBD COP-9 in Bonn, Germany, represent a comprehensive analysis of the economic value of biodiversity, and the consequences it holds for different levels of public and private policy analysis. Since natural capital accounting requires the identification of replenishment activities as well as environmental degradation, the inclusion of corporations into the valuation process is key. Natural Capital Declaration In June 2012, the Rio+20 conference "marked a watershed in the world wide interest on Natural Capital Accounting". The Natural Capital Declaration (NCD), a commitment by CEOs in the financial sector to embed ESG considerations in management and investment activities, was revealed prior to the conference. As well, the World Bank started the WAVES 50:50 Initiative to analyze the progress and next steps required for improving efforts to account for natural capital and enhance countries' sustainable decision-making capabilities. At the time of the conference, 62 countries, 90 corporations, and 17 civil society members had signed on to the campaign. == Country initiatives ==
Country initiatives
Many countries are undertaking projects to develop environmental accounts, to integrate them with national accounts or to create environmentally-adjusted macroeconomic indicators, including Green GDP. Early adopters of integrated environmental-economic accounts include the Netherlands, France, and the Philippines. This section documents the initiatives undertaken by, or concerning the G20 countries. Argentina A team of researchers at the University of Buenos Aires and CONICET organized the ARKLEMS+LAND project. Their research, based on the KLEMS database framework (Capital, Labour, Energy, Material and Service Inputs), measures and analyses the sources of economic growth, productivity and competitiveness in the Argentinian economy. The database includes the contributions of "Natural Resource as Land and Subsoil Assets" services to GDP growth. He derives data from the privatization of Yacimientos Petroliferos Fiscales (YPF), Argentina's state-owned oil enterprise, and using each method, generates estimated resource rent and depletion cost values for Argentina's reserves of petroleum. The energy and water accounts found on the National Balance Sheet are produced annually. As well, subsoil assets, timber for producing logs, and land are valued monetarily, and included on the non-produced assets in the National Balance Sheet. Britain The UK produces Environmental Accounts, consistent with the SEEA framework, that are separated into three dimensions: natural resource accounts, physical flows and monetary accounts. The majority of the data is measured in physical units; monetary units are used where relevant, and if the necessary data is available. In 2012, the ONS planned to run a study on producing a full ecosystem account, with high priority on physical and monetary forestry accounts. The Office also set out a series of goals to include land use and cover accounts in the 2013 Environmental Accounts. The Government has pledged to develop full UK Environmental Accounts by 2020. This work is being led by the ONS and the Department for Environment, Food and Rural Affairs (Defra). The UK Natural Capital Committee was providing advice to help inform this project. In December 2012, the ONS published a 'roadmap' that set out the work-plan for the project. The incorporation of natural capital into the national accounts, if done properly, would enable a high level picture to be obtained of trends in the state of the nation's natural assets through time. This in turn would help demonstrate the implications of actions impacting on the natural environment and may, therefore, encourage policy-makers to ensure natural assets are in future used sustainably through the appropriate use of policy levers. The Natural Capital Committee was also developing a methodology for corporate natural capital accounting. It was undertaking a pilot project throughout 2014 with a range of organisations to test and refine this methodology and is encouraging organisations that own or manage land to develop corporate natural capital accounts. Brazil Despite reports that Brazil would produce a Green GDP in the lead-up to the Rio+20, there is no indication that this process was undertaken. Canada Statistics Canada does not redefine or supplement existing national accounts aggregates with environmental information. However, it has developed the Canadian System of Environmental and Resource Accounts (CSERA), which "provides some information for those who may wish to calculate such 'green aggregates. It also includes estimates of land in the "tangible non-produced assets" section of the Canadian balance sheet. The CSERA has three dimensions: Natural Resource Stock Accounts; Material and Energy Flow Accounts; and Environmental Protection Expenditure Accounts. The Natural Resource Stock Accounts are measured in physical and monetary units. The two-year study approximated the market value, for 2002, of the region's forestry, mining, oil and gas, and hydroelectric generation sectors at $48.9 billion. China In 1997, Beijing authorities carried out a project assessing the city's Green GDP. This set a series of precedents for environmentally adjusted indicators in the country. Over the next decade, several regional pilot projects were undertaken by local authorities. Between 2001 and 2004, Chinese authorities worked with Statistics Norway to carry out a Green GDP assessment of Chongqing. A breakdown of the figure shows that water pollution, air pollution, and solid waste and accidents cost 286.28 billion yuan, 219.8 billion yuan, and 5.74 billion yuan, respectively. At the same time as the report was released, SEPA Vice Minister Zhu Guangya issued an independent report stating that each year, environmental damage in the country cost approximately 10% of GDP. China Daily reported that the Ministry of Environmental Protection valued the cost of pollution to the economy at 1.4 trillion yuan in 2009. Starting in 1998, the NBS developed rudimentary environmental accounts in forestry and energy. Since then, the NBS has expanded its environmental accounts to include pollution treatment, water, and minerals, along with the development of a comprehensive SEEA for China. Eurostat is also constructing environmental accounts expressed in physical and monetary terms, and asset accounts, as a step towards developing a regional SEEA. The creation of inclusive wealth indicators is also a recognized priority of the EU. The proposed 7th Environment Action Programme (EAP) of the EC explicitly identifies this issue, by calling for further development and integration of economic and environmental indicators. The Shared Environmental Information System (SEIS) proposes to streamline the collection of data required for designing environmental indicators. The EC Communication Roadmap to a Resource Efficient Europe sets 2020 as the year by which businesses, along with public authorities, will properly account for natural capital and ecosystem services. France The French Ministry of Sustainable Development produces satellite, environmental-economic accounts each year. However, it is planning on fully expanding the accounts to correspond with the SEEA (2012). While no adjusted macroeconomic aggregates are estimated in the GEEA, two of the GEEA indicators are embedded into the National Accounts: productivity of energy and raw materials, and transport intensity and share of the railways in providing transport. It plans to adjust GDP to account for environmental costs and impacts by 2015. The Green Accounting for Indian States Project (GAISP) was the first initiative of the Green Indian States Trust (GIST), an NGO started in 2004. The Project used data from Indian national databases to measure sustainable development and create green accounts at the state-level that were consistent with SEEA-2003 guidelines. Both are networks that conduct research on and analyses of environmental accounting, which is instructive for teachers, researchers and members of the policy community. Indonesia Members of the World Resources Institute, led by David Repetto, integrated environmental effects into Indonesia's national accounts in 1990. He subtracted net natural resource depreciation for the petroleum, timber, and soils sectors from GDP to estimate the environmentally-adjusted NDP. In their study, the UNU-IAS constructed an international environmental input-output model for the Asia Pacific region, and from this, was able to compile a preliminary SEEA and Green GDP approximation. In 1999, Silvia Teizzi at the University of Sienna applied a method of monetary valuation to externalities arising from agricultural production in Italy. She separately estimated a shadow price and a quantity for the externalities and calculated their values between for each year between 1961 and 1991. Under the local Agenda 21 process, the City and Local Environmental Accounting and Reporting (CLEAR) project and the CONTAROMA project were undertaken by Italian municipalities. They are based on data compiled by 10 government ministries, and describe the environmental burden of particular natural resources in physical units. It began developing a SEEA (KORSEEA) in 2002, and the development of Economy-wide Material Flow Accounts, and NAMEA took place in the following years. Environmental adjustment in this study is limited to the subtraction of "degradation costs of natural resources" from NDP. The Mexican System of Economic and Ecological Accounts (MSEEA) was started in 1988, and has been published annually since 1991. After 2015, the basis for integration will appear with the creation of input-output tables. United States In 1992, the Bureau of Economic Analysis within the Department of Commerce began intensively developing environmental accounting methodologies. However, Congress directed the department to suspend all activities in this area in 1994, after the first U.S. Integrated Environmental and Economic Satellite Accounts were published. The largest externalities, for which damages range from 0.8 to 5.6 times value added, arise from coal-fired electric generation. == See also ==
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