A New Balance Sheet for Nations: Launch of Sustainability Index that Looks Beyond GDP

www.unep.org/Documents.Multilingual/Default.asp?DocumentID=2688&ArticleID=9174
The world's fixation on economic growth ignores a rapid and largely irreversible depletion of natural resources that will seriously harm future generations, according to a report which today unveiled a new indicator aimed at encouraging sustainability - the Inclusive Wealth Index (IWI).

The IWI, which looks beyond the traditional economic and development yardsticks of Gross Domestic Product (GDP) and the Human Development Index (HDI) to include a full range of assets such as manufactured, human and natural capital, shows governments the true state of their nation's wealth and the sustainability of its growth. 

The indicator was unveiled in the Inclusive Wealth Report 2012 (IWR), a joint initiative launched at Rio+20 by the United Nations University's International Human Dimensions Programme on Global Environmental Change (UNU-IHDP) and the United Nations Environment Programme (UNEP). The report looked at changes in inclusive wealth in 20 countries, which together account for almost three quarters of global GDP, from 1990 to 2008. 

Despite registering GDP growth, China, the United States, South Africa and Brazil were shown to have significantly depleted their natural capital base, the sum of a set of renewable and non-renewable resources such as fossil fuels, forests and fisheries.

Over the period assessed, natural resources per-capita declined by 33 per cent in South Africa, 25 per cent in Brazil, 20 per cent in the United States, and 17 per cent in China. Of all the 20 nations surveyed, only Japan did not see a fall in natural capital, due to an increase in forest cover.

If measured by GDP, the most common indicator for economic production, the economies in China, the United States, Brazil and South Africa grew by 422 per cent, 37 per cent, 31 per cent and 24 per cent respectively between 1990 and 2008. 

However, when their performance is assessed by the IWI the Chinese and Brazilian economies only increased by 45 per cent and 18 per cent. The United States' grew by just 13 per cent, while South Africa's actually decreased by 1 per cent.

...The report focuses on the sustainability of current resource bases, and does not analyze the rest of the 19th and 20th centuries, when many developed countries following an accelerated growth path may have depleted natural capital.

Wealth accounting, the concept behind the IWI, draws up a balance sheet for nations and shows countries where their wealth lies. By taking into account a wide array of capital assets a nation has at its disposal to secure society's well-being, it presents a more comprehensive picture and informs policy makers on the importance of maintaining their nation's capital base for future generations.

... 

The importance of keeping an eye on the full range of a country's capital assets becomes particularly evident when population growth is factored in. 

When population change is included to look at the IWI on a per-capita basis, almost all countries analyzed experienced significantly lower growth. This negative trend is likely to continue for countries that currently show high population growth, like India, Nigeria and Saudi Arabia, if no measures are taken to increase the capital base or slow down population growth.

The IWR presents the inclusive wealth of 20 nations: Australia, Brazil, Canada, Chile, China, Colombia, Ecuador, France, Germany, India, Japan, Kenya, Nigeria, Norway, the Russian Federation, Saudi Arabia, South Africa, USA, United Kingdom and Venezuela. 

The countries selected represent 56% of world population and 72% of world GDP, including high, middle and low-income economies on all continents. A few countries were chosen based on the hypothesis that natural capital is particularly important to their productive base - as in the case of oil in Ecuador, Nigeria, Norway, Saudi Arabia and Venezuela; minerals in countries such as Chile; and forests in Brazil.

Key findings from the report are:

• While 19 out of the 20 countries experienced a decline in natural capital, six also saw a decline in their inclusive wealth, putting them on an unsustainable track, Russia, Venezuela, Saudi Arabia, Colombia, South Africa and Nigeria were the nations that failed to grow. The remaining 70 per cent of countries show IWI per-capita growth, indicating sustainability.
• High population growth with respect to IWI growth created unsustainable conditions in five of the six countries mentioned above. Russia's lack of growth was due largely to a drop in manufactured capital
• 25 per cent of countries which showed a positive trend when measured by GDP per capita and HDI were found to have a negative IWI per capita. The primary driver of the difference in performance was the decline in natural capital
• With the exception of France, Germany, Japan, Norway, the United Kingdom and the United States, all countries surveyed have a higher share of natural capital than manufactured capital, highlighting its importance
• Human capital has increased in every country and is the prime capital form that offsets the decline in natural capital in most economies
• There are clear signs of trade-off effects between the different forms of capital
• Technological innovation and/or oil capital gains (due to rising prices) outweigh decline in natural capital and damages from climate change, moving a number of countries - Russia, Nigeria, Saudi Arabia and Venezuela - from an unsustainable to a sustainable trajectory
• Estimates of inclusive wealth can be improved significantly with better data on the stocks of natural, human and social capital and their values for human well-being.

Recommendations

While inclusive wealth has increased for most countries, the report shows that an examination of natural capital is crucial for policy makers.

Even though a reduction in natural capital can be offset by the accumulation of manufactured and human capital, which are reproducible, many natural resources such as oil and minerals cannot be replaced.

As a result, a more inclusive definition of wealth that will secure a legacy for future generations is urgently needed in the discussion of sustainable economic and social development.

The report, which will be produced every two years, makes the following specific recommendations:

• Countries witnessing diminishing returns in natural capital should invest in renewable natural capital to improve their IWI and the well-being of their citizens. Example investments include reforestation and agricultural biodiversity
• Nations should incorporate the IWI within planning and development ministries to encourage the creation of sustainable policies
• Countries should speed up the process of moving from an income-based accounting framework to a wealth accounting framework
• Macroeconomic policies should be evaluated on the basis of IWI rather than GDP per capita
• Governments and international organizations should establish research programmes to value key components of natural capital, in particular ecosystems.

UN Under-Secretary General and Rector of the United Nations University, Prof. Konrad Osterwalder, concluded that using the IWI would safeguard the interests of many developing nations.

"The Millennium Development Goals (MDGs) have functioned as an important tool to focus international attention and action around key pressing global issues," he said. "As 2015 fast approaches, the deadline for meeting the MDGs, it is clear that the opportunities for many developing countries to achieve their goals may be compromised if the present rates of decline of various crucial ecosystem services continue."

Manufactured capital is defined as infrastructure, goods and investments. Natural capital includes fossil fuels, minerals, forests, fisheries and agricultural land. Human capital includes education and skills.

The report will be publicly available for download on the IHDP website from June 17, www.ihdp.unu.edu. A hard copy will be published by Cambridge University Press:

http://www.cambridge.org/us/knowledge/isbn/item6922822/Inclusive%20Wealth%20Report%202012/?site_locale=en_US

Authors and Review Board

Developed under the scientific advice of Sir Partha Dasgupta, Frank Ramsey Professor Emeritus of Economics at the University of Cambridge, the report features contributions by over a dozen leading scholars. Authors were selected based on their outstanding scientific expertise in inclusive wealth and environmental economics, and an extensive publication record in the area of natural capital, human well-being, social welfare and valuation, among others. The review board was chosen based on their expertise in the field, strong academic credentials and a good publishing record in the relevant fields.

Project Partners

The IWR 2012 is a joint initiative of the United Nations University International Human Dimensions Programme on Global Environmental Change (UNU-IHDP) and the United Nations Environment Programme (UNEP), in collaboration with the UN-Water Decade Programme on Capacity Development (UNW-DPC) and the Natural Capital Project.

About UNU-IHDP (www.ihdp.unu.edu)

The International Human Dimensions Programme on Global Environmental Change (IHDP) is an interdisciplinary science program, working towards a better understanding of the interactions of humans with and within their natural environment. IHDP advances interdisciplinary research and collaborates with the natural and social sciences. It enhances the capacities of science and policy communities through a large network and furthers a shared understanding of the social causes and implications of global change. The program facilitates dialogue between science and policy to ensure that research results feed into policy-planning and law-making processes, and offers education and training to future leaders in the field. IHDP was founded by the International Council for Science (ICSU) and the International Social Science Council (ISSC) of UNESCO in 1996. The IHDP Secretariat is hosted by the United Nations University (UNU) in Bonn who joined as third sponsor in 2007. IHDP's research is guided by an international Scientific Committee comprised of renowned scientists from various disciplinary and regional backgrounds.

The United Nations Environment Programme (UNEP) www.UNEP.org

June 17, 2012