Natural capital accounting

John Box | 19 May 2014 | Comments

Natural capital accounting for sustainable development

There is currently a lot of talk about natural capital and ecosystem services – the concepts are rapidly gaining traction as the way to ensure our environment is better managed. But what about sustainable development? How does a better understanding of natural capital and ecosystem services help to deliver it?

Primarily, natural capital and ecosystem services give us a better grip on the ‘environment’ leg of the sustainable development stool. Sustainable development requires us to balance three types of capital – economic, environmental and social. Notably, natural capital and ecosystem services tell us about different aspects of sustainable development.

Natural capital refers to the ‘stock’ of our natural environment assets. It represents a ‘capabilities’ approach to conceptualising sustainable development – and sustainability requires us to consume capital at a rate no greater than it is being produced. In this sense what is available for us to use today is also available for others to use tomorrow, enabling intergenerational equity.

Ecosystem services refer to the flow of benefits that we receive from natural capital. They represent an ‘outcome’ approach to conceptualising sustainable development – and sustainability requires per capita benefits to be maintained over time. In addition to covering intergenerational equity, this approach also helps to explore the distribution of benefits across society, that is, intra-generational equity.

When one brings in arguments of strong and weak sustainability – that is, the extent to which one form of capital can be substituted for another – it is clear that a comprehensive understanding is required of both stocks and flows. Even then, arguments will remain about the most appropriate development trajectory.

Natural capital accounting is an important component in the development of more comprehensive ‘wealth accounts’[1]. If successful, such accounting will help us move beyond the current GDP-focussed statistics, providing a visible picture of how we are using our stocks of capital – manufactured, natural, human and social – and at its most complete, also how benefits flow from that capital. Such a fundamental monitoring of sustainable development could have significant influence on Government policy.

However, one only has to look at how difficult it is to estimate our current economy-based national accounts, and the criticism that is levelled at the Office of National Statistics for their ongoing revisions to the data, to realise the level of criticism that could be levelled at any natural capital or wealth accounts.

And might this surely be the case if it turns out that natural capital accounts tell a bad political news story. How would this brush up against the ‘growth agenda’ and the political need for positive GDP and deficit reduction? Will there always be a reason why truly sustainable development isn’t a short term priority?

There is strong Government, and private sector, commitment to producing extended accounts that incorporate the environment. Let’s hope that this commitment remains when the accounts start posing tough choices that challenge the economic and political status quo.

[1] See the World Banks WAVES partnership project for more information: