In the run-up to the 2008 global financial crisis, banks took big risks, secure in the knowledge that because they were so large, governments would be forced to bail them out if they began to fail. Bankers committed far more than their bank’s own assets and capital, which ordinarily act as a reserve and safety net in case of losses. They operated on the assumption that someone else would save them should the worst come to pass—as indeed it did.
Today, we treat nature in much the same fashion: drawing down resources without accounting for the economic and social impacts, and assuming someone else will save the day. But there is no safety net for natural resources; we cannot reproduce the diversity of resources we are losing at the scale we are losing them. And without diversity of nature at scale, we lose the underpinning of all life on earth, including humanity. Unlike policy responses to the global financial crisis, there is no equivalent bail-out mechanism for ecological overshoot and collapse.
Nonetheless, our ways of gauging the economic health and resilience of nations don’t account for this possibility. Gross domestic product (GDP), the standard metric of growth for more than 70 years, has increasingly apparent shortcomings.
GDP was intended to capture a single dimension at a single point in time, not to measure sustainability. So, for example, generating and selling electricity from coal-fired power stations can increase GDP, while ignoring the costs of accelerated climate change and increased respiratory disease in those exposed to the pollution. GDP measures indicate that the more fish a nation catches and sells, the better it is doing. But emptying the seas of fish, and subsequently suffering irreversible damage to the economy and society, is not success. In these cases, while GDP goes up, nature is running on a deficit.
It is time to change the way we measure the economic health of nations. Until we factor natural resources and, ultimately, human well-being into our economic thinking and planning, we will court financial and ecological catastrophe.
We are overdrawing on nature’s balance sheet, and on the verge of making decisions about our natural resources that could precipitate a collapse of the global economy. To prevent this fate, we need to measure our economic vitality with a broader compass of progress—one that expands beyond the value of products and services exchanged on markets to include assets such as the natural and human resources that enable these products. We can start with our most threatened form of capital: natural wealth.
A new measure of progress
A recent report found that biodiversity—the wealth of life forms on Earth—continues to decline in every region of the world, “significantly reducing nature’s capacity to contribute to people’s well-being.” The report, produced by more than 550 scientists from 100 countries, was issued by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services, a body administered by the United Nations.
Globally, more than 25,000 species are threatened with extinction as we deplete natural resources such as forests, topsoil, and water more quickly than nature can regenerate them. This overharvesting can have staggering consequences for human welfare: Catches from exploitable fisheries in the Asia region, for example, are on course to decline to zero by 2048.
Some argue that because benefits such as pollination, nutrient cycling, and disease control are not directly bought or sold, there is no need to place a value on them. But the result is that in decision-making, nature is automatically given a value of zero.
For instance, up to a third of food eaten worldwide depends on bee pollinators, yet bee populations are in serious decline. An economic study of pollination in Costa Rica found that areas distant from pollinator habitat experienced 21 percent lower coffee yields, a loss of about $130 per hectare per year in 2004. In South Africa’s Western Cape, pollinators contribute $50 million to $310 million to fruit production. When these “free” ecosystem services fail, it will be extremely costly or potentially impossible to find viable substitutes.
These criticisms aren’t new. Economists have questioned the value of GDP as a tool to measure overall well-being for nearly 50 years, but several attempts to augment it have failed to take hold. But we’ve now hit a do-or-die moment, as we have reached—and in some cases surpassed—nature’s ability to regenerate. It is time to adjust our measure of progress.
To address the failings of GDP, colleagues at the UN Environment Program developed the Inclusive Wealth Index (IWI) metric. The IWI takes into account fresh water, clean air, recreation, and other benefits people derive from nature. It also takes into account productive aspects of human resources, such as skills, education, and health, along with everyday products such as buildings, machines, and roads.
The IWI captures the wealth, growth, and social progress we enjoy today so that we can sustain it tomorrow. It is the sensor we need to vigilantly monitor—whether we are drawing down nature in a sustainable way and adequately managing our natural wealth—because by all current indications, we are not.
This measure helps us sound the alarm by making it possible to speak in terms that policymakers and economists understand: dollars. Concrete valuations make it possible to develop policy tools to manage natural resources and determine the investments needed to sustain these reserves. One example comes from the United Kingdom. The country recently proposed a 25 Year Environment Plan that uses payments to incentivize farmers to deliver public goods such as pollinator habitats.
Similarly, India’s environment minister Harsh Vardhan tweeted in June that his government would “begin the process to effectively measure progress and sustainability and treat expenditure on conservation as investment rather than cost.”
India joins 140 countries that use the IWI to measure their wealth and provide a basis for assessing performance and prescribing policy. These countries are pioneering a new way of describing the state of the economy, a global effort that will be detailed in a new report this summer.
Pollinating bees, tropical hardwoods, fish stocks in Asia, and other natural resources have been invisible on the world's balance sheet for far too long. The IWI should ring the opening bell at the New York Stock Exchange. It should alert the business community that the foundations for the global economy will sink unless a more robust form of measurement guides the system.