Natural capital and the fourth Industrial Revolution

The measurement and management of “natural capital” is an idea, as the saying goes, whose time has come.

The concept of natural capital is more relevant than ever in 2017, when we are devising the means to achieve the Sustainable Development Goals. We also find ourselves in the midst of the fourth industrial revolution, which is characterized by the digital world, genetics, robotics, 5G networks – and a new understanding of humanity’s relationship with the natural world.

“Natural capital” refers to assets that occur in nature and can be used for economic production or consumption. Naturally occurring assets provide use benefits through the provision of raw materials and energy that are used, or that one day could be used, in economic activity. They are subject to depletion through human use. Natural assets fall into four categories: mineral and energy resources, soil resources, water resources and biological resources.

To date, society has not developed an indicator comprehensive enough to capture the change in natural capital over time. Many elements of natural capital are declining. The Inclusive Wealth Report, led by the UN Environment Programme, clearly shows that out of 140 major nations of the world, 109 are showing a downward trend in their natural capital over the past two decades. Forest resources are declining in 85 countries. Renewable resources in general are declining in more than 100 countries.

A measure of national wealth that excludes natural capital depreciation likely exaggerates the actual increase in an economy’s wealth over time, especially in those countries where accumulation of other forms of wealth is failing to compensate for diminishing natural capital. This suggests that income and wealth inequality may be worsening in rich countries and in the global economy in general.

It is not surprising that at the UN Environment Assembly in May 2016 the nations of the world, in an unprecedented move, unanimously passed a resolution calling for the sustainable management of natural capital for sustainable development and poverty eradication. This was due to the culmination of the urgency expressed by global communities over the last decade.

Today we are in the fourth stage of the industrial revolution, which has driven productivity and efficiency to a new level. Unfortunately, this revolution does not reduce the burden on natural capital, especially in the poorest parts of the world – sub-Saharan Africa, Amazonia and South Asia – where 896 million people still face extreme poverty and rely on common water bodies, grazing land and biodiversity to survive. On an everyday basis, cities are flooding and schools are being closed due to air pollution. If we continue with business as usual, plastics will soon exceed the fish stock in our oceans.

Global and national modelling studies suggest that yields of major cereals will decline if temperatures continue to rise, especially in tropical countries. Water scarcity threatens agricultural growth in large parts of the world. Declines in natural capital – especially the loss of biodiversity, including critical crop pollinators, and a reduction in soil quality – will have substantial impacts on global food security.

We need better measurement and credible valuation of natural capital in order to integrate these natural assets into our everyday production and consumption decisions.

Global consensus is emerging on the need to measure and value natural capital. This can be seen in the following declarations and decisions worldwide.

Gaborone Declaration 2012, in which ten African countries undertook the pledge to “ensure that the contributions of natural capital to sustainable economic growth, maintenance and improvement of social capital and human well-being are quantified and integrated into development and business practice”.

African ministers of the environment (in AMCEN under Decision 15/1 - Sustainably harnessing Africa’s natural capital in the context of Agenda 2013) agreed to  

• Take measures at the national, regional and international levels to combat the illicit trade of Africa’s natural resources, reverse illicit flows, and ensure the restitution of such resources to their countries of origin;
• Put in place appropriate policies and institutional measures, taking into consideration the findings of the report entitled Africa’s Adaptation Gap 2: bridging the gap – mobilizing sources, so as to: harness  the full potential of Africa’s rich natural resource endowments; ensure that the use of natural resources benefits the countries that possess them in an inclusive manner; create value addition in sustainably managing natural resources while ensuring the protection of ecosystems and minimizing environmental degradation; and promote sustainable consumption and production patterns;
• Strengthen international cooperation to promote research and development and technological innovations, as well as capacity development for sustainably harnessing the continent’s natural resources.
• There was also a request to the Assembly of the African Union to mandate the existing High-level Panel on Illicit Financial Flows from Africa to make recommendations on how to reverse the illicit flow of financial resources arising from natural resources; industrialize and add value by harnessing natural capital; and propose actions and measures in that regard to member States and regional institutions.

The Fourth Environment Ministers' Meeting in Asia in 2015 (attended by China, Lao PDR, Myanmar, Thailand and Vietnam), stressed the need for assessment, measurement, accounting and developing linkages of natural capital with economic policies of governments, business and industry.

In this context, it is heartening to see the forthcoming World Forum on Natural Capital in Edinburgh on 27 and 28 November, in partnership with the UN Environment. World class thought leaders from business, government, academia, civil society and United Nations bodies will meet and develop the priorities of work, identify knowledge gaps and suggest pathways to link natural capital with sustainability of business, economy and society. The Sustainable Development Goals will appear as the common thread but some core issues in measurement and accounting of natural capital will also get significant attention. In addition, other issues such as natural capital and equity and the possibility of substitution of natural capital by other types of capital will be discussed.

There will be engaging discussions on how to measure wealth and use it as a complement to conventional progress measurement

 

Pushpam Kumar is the Chief Economist and UN Environment and will be speaking in the opening and closing plenaries of the World Forum on Natural Capital