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."
Composite indices Composite indices normalize and aggregate various data into a single number, such as the Human Development Index, Osberg and Sharpe's Index of Economic Well-Being, the Changing Wealth of Nations, or the Environmental Sustainability Index, which ranks countries based on an assessment of 76 variables covering five domains. It is often instructive to examine the separate dimensions of these indices. However, they may present a skewed view of countries' contributions to environmental problems and make problematic, normative assumptions about the values of certain variables.
Adjusted GDPs Adjusted gross domestic product, or green GDP, systematically corrects conventional GDP by taking into account aspects of a country's production of goods and services (e.g. environmental degradation and natural resource depletion) that would not otherwise be included in the indicator, but are relevant to sustainability.
Indices focusing on overconsumption Indicators that fall in this category conceive of sustainability with respect to consumption levels and investment in natural resources. Examples include adjusted net savings (ANS) and ecological footprint accounts. ANS is calculated as the change in total wealth over a given time period, while ecological footprint assessments determine how much of the regenerative capacity of the biosphere is required to maintain the consumption habits of a defined population. 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 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. At the Summit in particular, Agenda 21 – in which Chapter 40 called for signatories to develop quantitative information regarding their activities – was adopted.
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