National accounting to measure the value of nature plans World Bank

Banks, investors and insurance companies are beginning to recognise the financial risk of biodiversity loss, cultivating the move towards establishing a system of national accounting that measures the value of nature.

The World Bank announced the establishment of the Global Partnership for Ecosystems and Ecosystem Services Valuation and Wealth Accounting after a World Economic Forum survey earlier this year found that biodiversity loss was perceived a greater economic risk than international terrorism. It is becoming increasingly evident that involvement in an environmentally unsound project can lead to dire financial consequences.

The initiative, announced at the Convention on Biological Diversity meeting in Japan in October, is proposed to give developing countries the tools they need to integrate the economic benefits that ecosystems provide into national accounting systems.

Richard Burrett, co-chair of the United Nations Environment Programme Finance Initiative (UNEP FI) said that the 55 per cent crash in BP's share price and the decline of its credit rating in the wake of the Gulf of Mexico oil spill, highlights the need for a new risk assessment tool that incorporates the value of ecological services. "The way we assess the performance of companies is flawed. It does not account for all externalities" he said.

The World Bank initiative follows from several previous attempts to replace or "green" Global Domestic Product (GDP) as a measurement of national economic performance. In 2007, the European Parliament launched its Beyond GDP initiative and in February 2008 French President Nicolas Sarkozy established the Commission on the Measurement of Economic Performance and Social Progress.

John Talberth, senior economist at the World Resources Insitute (WRI), wrote in an article published in April: "the political landscape has changed dramatically in the wake of the economic crisis and opportunities for fundamental changes in how we measure economic performance and social progress are now significantly more promising than they have ever been."

Talberth has been involved in similar initiatives which incorporate ecosystem services into national accounting. He wrote: "GDP…fails to track the depletion or degradation of natural, human, built, and social capital on which all economic activity ultimately depends."

The initiative should indicate the sustainability of general economic welfare over time, stresses Talberth. He also suggests that the effects and inherent success of the initiative depend on how well companies are regulated.

Despite the World Bank's aspirations to promote sustainable development, it has been the focus of controversy with regard to its projects and policies, which sometimes lead to opposite results to those proposed by the new initiative.

For years the World Bank has funded energy projects, some of which are accused of causing environmental degradation in developing countries. The response from the World Bank is that while addressing climate change is important, it has a duty to help the world's poor gain access to cheap electricity.

Who the main beneficiaries of such projects are though, is a matter of debate. The requirements of big business and those of the developing world are clearly still only initiating their ties, and there is much work to be done.

In an interview with Socialfunds.com, Janet Ranganathan, vice president for Science and Research at WRI voiced her support for the World Bank initiative. "While biodiversity is a hard concept to reconcile with development, the initiative suggests a way to bridge the differences between the environment and development," she said.

The persistence towards a more socially and environmentally viable measure of economic performance is a positive sign, however with the initiative still in it's early stages it is up to individual organisations to adhere to regulations.

With further investment into the scheme, the World Bank proposes that it will not only address national accounting for ecosystem services, but also affect corporate sustainability reporting.

The monitoring of biodiversity risks and green performance is difficult to quantify, however since it is evidently higher on the agenda in light of political changes, accounting for ecosystem services is something all organisations should be prepared for.

Author: Marianna Keen | Climate Action

Image: allegra_ | Flickr