In the news: the rise of "natural capital" – why the UN is urging countries to look beyond GDP
Natural capital accounting, which takes stock of natural assets such as forests, soils and oceans, is gaining traction. Here's what our chief executive and specialists have to say on its rise.
The concept of natural capital, which tries to put a price on the earth's assets, is rapidly increasing in popularity.
While the term first came into use in the 1970s, there are now growing calls for natural capital to be viewed as an economic asset, with the UN urging governments to look beyond GDP.
The UN is adopting a landmark economic framework designed to ensure natural assets are included in economic reporting.
The snappily-titled System of Environmental-Economic Accounting (SEEA) will attempt to put a price on natural assets that are used and degraded by economic development and commerce.
Meanwhile the UK government is the latest to take an in-depth look at the economics of biodiversity through its Dasgupta Review, revealed in February.
Sir Partha Dasgupta, the emeritus professor of economics at The University of Cambridge, is calling for biodiversity to be regarded as indispensable to economic prosperity.
Professor Dasgupta says: "We are all asset managers. Whether as farmers or fishermen, hunters or gatherers, foresters or miners, households or companies, governments or communities".
His review warns that declines in biodiversity and the environment’s ability to provide food, clean water and air, regulate the climate and absorb pollution are “fuelling extreme risk and uncertainty for our economies and wellbeing”.
It cites estimates that suggest we would require 1.6 Earths to maintain current living standards.
What’s the reaction to the concept of natural capital been?
With biodiversity declining globally at unprecedented rates, and showing no signs of slowing, there is widespread support and momentum behind the UN’s campaign.
In the UK, the Dasgupta Review has been compared to the Stern Review, one of the most influential reports on the economic impacts of climate change.
But the idea of putting a price on so-called ecosystem services is not without challenges, and some environmentalists regard pricing nature into the economic system as fundamentally wrong.
Who’s been talking about it?
Lifelong champion of the natural world Sir David Attenborough.
Attenborough has backed the concept, saying the Dasgupta Review "provides the compass that we urgently need".
Attenborough says it "shows us how, by bringing economics and ecology together, we can help save the natural world at what may be the last minute – and in doing so, save ourselves".
Schroders' chief executive recently appeared on a TV news segment on how natural capital is gaining fans in unlikely places.
Peter Harrison – Schroders' CEO – says:
"This is a paradigm shift. It's a fundamental change in the way we think about corporate profits, and it's incredibly exciting. When we invest in a company it's really important that we look at the full impact of their profits, so profits after their impact on the environment, and only then will we understand the true impact on the natural world."
Schroders has signed up to the Terra Carta, a charter from the Sustainable Markets Initiative designed to "put sustainability at the heart of the private sector".
What do our specialists say?
Irene Lauro – Economist at Schroders – says:
"The concept of natural capital has not, over centuries of commercial activity, been systematically included in decision-making or in economic indicators like gross domestic product. Mankind has underestimated the costs of production at the expense of the environment.
"Countries have grown and developed over the centuries but they have done so while eroding natural capital. With the new accounting framework, we will finally give value to stock of natural capital, acknowledging that nature plays an important role in enhancing human prosperity.
"To achieve a more sustainable future we need to make sure that economic growth increases without harming the environment. Incorporating the value of natural capital will be an important step in that direction."
Kate Rogers – Head of Sustainability, Wealth, at Schroders – says:
"While accounting is perhaps not the first activity people associate with saving the planet, the UN’s new system for evaluating the world’s assets could be a crucial step towards achieving sustainable development.
"In the past we have taken advantage of nature to provide economic growth. Our activity has created climate change, habitat loss and the pollution of our oceans. Around one million animal and plant species are now threatened with extinction and the average abundance of native species in most major land-based habitats has fallen by at least 20%, mostly since 1900. We must account for the value of seas and rivers, of flora and fauna, to allow us to conserve and support our most important assets.
"Investors have a role to play in directing capital towards solutions that protect and invest in nature and away from harm. Tools like Schroders’ SustainEx, which puts a price on companies’ impacts on the planet, can help us separate those companies that destroy nature from those that are truly sustainable."
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