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New Indicators to Value Environmental Assets Launched at Rio+20

J. Mijin Cha

We’ve talked often about how true sustainable development cannot be achieved without adopting new metrics for progress beyond GDP. Without valuing things like natural capital and work done within the home, GDP is unable to accurately reflect the true growth of our economy and, more importantly, our progress. Yesterday, at the Rio+20 conference, a new metric was launched that offers a much more nuanced picture of growth and progress.

Together with the UN Environmental Program, the International Human Dimensions Programme on Global Climate Change (IHDP) introduced the Inclusive Wealth Index, which looks at a country’s capital assets, including manufactured, human and natural capital, and its corresponding values to see a country’s true wealth and the sustainability of its growth. Using the index, IHDP will release a report every two years that calculate the IWI for 20 countries that account for nearly three-quarters of global GDP.

The first report found that, not surprisingly, despite GDP growth, China, the United States, South Africa and Brazil were shown to have significantly depleted their natural capital base, which is the sum of a set of renewable and non-renewable resources like fossil fuels, forests and fisheries. The most dramatic difference between GDP and IWI was China, who when measured only by GDP saw growth of an astonishing 422 percent between 1990 and 2007 but when measured by IWI saw growth of just 45 percent of the same time period.

The report also found that apart from six countries, all countries surveyed have a higher share of natural capital than manufactured capital, which means that future growth is particularly dependent on sustainable use of resources in these countries. Using natural resources faster then they can be replaced starts to deplete the productivity base that is at the core of economic development.

The importance of valuing natural resources as a form of capital is even being acknowledged by corporations, who have arguably benefitted the most from natural resources extractions. Twenty-four companies worth a combined half trillion dollars, including Dow Chemical, Kimberly-Clark, and Xerox, announced a plan this morning to create a framework that would put a value to natural resources. In an effort led by the Corporate Eco Forum and the Nature Conservancy, these companies created a methodology to assign value to forest, freshwater and marine ecosystems. The philosophy behind this effort is that it is in businesses' interests to ensure that the natural resources on which they depend to make their products are used in a sustainable manner so they can continue to make their products.

However, the industry and NGO-led partnership is a great example of why these metrics and indicators need to be adopted into government policy and not left to private actions. It is certainly true that businesses must be engaged, particularly as natural resource users and extractors. But, the report put out accompanying the pledge raises a lot of green-washing flags. While there are many stories of the sustainability initiatives and practices these companies have adopted, how natural resources will be valued and what importance they will play in the tension between increasing profits and preserving resources is not discussed. The devil is in the details and until Dow Chemical starts to forfeit profit for sustainability, it seems unlikely that voluntary industry policing will work.