The bees will send the bill

Ecosystems as capital: three key insights

by By Marie Owens Thomsen, Head of Global Trends and Sustainability, Lombard Odier Private Bank

Each crisis brings up new questions and generates new answers. The search for these insights sometimes even produces a new statistical indicator. The Great Depression, for example, led to the invention of the Gross Domestic Product (GDP) by the American Economist Simon Kuznet in 1934. This system of national accounting was then universally adopted at the conference of Bretton Woods in 1944. The rules that govern the compilation of these data are established by the United Nations (UN): The International Monetary Fund plays an essential role in providing guidelines and supporting countries in their effort to put the accounting system into practice.

#1 A new statistical indicator: Natural Capital

GDP can be thought of as akin to a company’s profit and loss account/income statement. However, there is no balance sheet for a country. Of course, there is data that covers its physical and financial capital. The human capital, for its part, can be estimated by future revenues based on the level of education and the average life expectancy of a population. Yet there is no indicator that describes nature itself as capital. Ecosystems so far have never been accounted for in an international framework. Consequently, no systematic and comparable collection and disclosure that would allow the comparison of natural capital between countries exists to date. Thanks to the Statistical Division Unit of the UN, this has now changed: As of March 2021, a system of ecosystem accounting has been adopted by the 52nd statistical commission of the UN. Finally, even bees will be able to contribute to GDP!

#2 Measuring the value of ecosystems

The climate crisis has thus produced a new statistical indicator. It will identify the extent of ecosystems, their condition and the services they may provide. The change of these parameters over time will be assessed by comparing the “stock” from one period to another. In short, the aim is to measure the value of degradation, for example, in terms of the future loss of value in the service that an ecosystem will be able to provide, caused by a loss of its extent or a deterioration of its condition. This loss of natural capital can then be deducted from aggregated national accounts such as the GDP.

#3 A major step for sustainability

Our need for statistical indicators is likely to grow and will never be entirely fulfilled. Nevertheless, adopting international standards of accounting for ecosystems and the natural capital they represent is a major step forward. It allows us to better understand whether GDP growth is value-creating or value-destroying. And this is the key question when it comes to all matters related to sustainability.