Natural capital accounting

Natural capital accounting is the process of calculating the total 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.

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.

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 normalize and aggregate various data into a single number. For example, 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 5 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 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.

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