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November 03, 2010
World Bank Forms Partnership for Valuation of Ecosystems
    by Robert Kropp

SocialFunds.com talks with the World Resources Institute about the initiative to integrate the economic benefits of ecosystems into national accounting systems.


The momentum for integrated reporting by companies, or at least a form of accounting for ecosystem services in corporate sustainability reporting, received support on the macroeconomic level last week, when the World Bank announced the formation of the Global Partnership for Ecosystems and Ecosystem Services Valuation and Wealth Accounting. According to the World Bank, the new initiative intends to "give developing countries the tools they need to integrate the economic benefits that ecosystems such as forests, wetlands and coral reefs provide, into national accounting systems."

The World Bank initiative was announced at the
The Convention on Biological Diversity meeting, held in Japan, where 193 countries met "to meet the unprecedented challenges of the continued loss of biodiversity compounded by climate change." The United States, which has signed but not ratified the Convention, was present as an observer.

The partnership builds upon the
Economics of Ecosystems and Biodiversity (TEEB), a project hosted by the United Nations Environment Programme (UNEP). Earlier in October, TEEB released its final report, which states, "The failure to account for the full economic values of ecosystems and biodiversity has been a significant factor in their continuing loss and degradation."

In an
article posted on the website of the World Resources Institute (WRI), Janet Ranganathan, the Vice President for Science and Research at WRI, described the need for establishing a system of national accounting that measures the value of nature.

"Conventional measurements of national economic performance, such as Gross Domestic Product (GDP) and Standard National Accounts, do a poor job of tracking stocks and flows of ecosystems and their services," Ranganathan wrote. "By giving these assets a value and including them in the national accounts, the hope is that what gets measured will get managed."

"These new accounts will also raise awareness about the value of a country’s natural assets and increase public support for decisions that are better for people and nature," Ranganathan continued.

SocialFunds.com spoke with Ranganathan about the significance of the World Bank initiative.

"Environment versus development is a false choice," Ranganathan said. "While biodiversity is a hard concept to reconcile with development, the initiative suggests a way to bridge the differences between the environment and development. The national economic level is the entry point in trying to integrate ecosystem services with performance standards."

While the World Bank initiative addresses national accounting for ecosystem services, it should, if successful, affect corporate sustainability reporting as well. Describing agriculture as the industry sector most dependent on ecosystem services, Ranganathan said, "Investors should be asking what role companies in this and other sectors have in not degrading ecosystem services further. Companies shouldn't do this, because it undermines their own effectiveness."

Addressing corporations, Ranganathan added, "Do you have systems in place to manage the risks associated with your dependence on ecosystem services?"

John Talberth, Senior Economist at WRI, has been involved for years in efforts to incorporate ecosystem service valuation through such initiatives as the Genuine Progress Indicator (GPI) and the Ecological Footprint. In an
artic le published in April, Talberth wrote, "GDP…tells us nothing about sustainability. It fails to track the depletion or degradation of natural, human, built, and social capital on which all economic activity ultimately depends. It fails as well to capture the inherent unsustainability of economic activity financed by debt."

"GDP fails to recognize the costs of inequality," Talberth continued. "It counts growth concentrated in the upper-most income brackets as 'progress,' even if incomes and quality of life are falling for most."

SocialFunds.com also spoke with Talberth about the World Bank initiative.

"Ever since 1992, when the concept of sustainable development was put out, leaders of countries, agencies within those countries, and non-governmental organizations (NGOs) all agreed that we need to replace the GDP with something that actually measures sustainable development," Talberth said. "Now it appears there will be a concerted effort not to abandon GDP but supplement it with something more in line with the concept of sustainability. None of the economic indicators were able to foretell the economic meltdown, but part of the problem could have been foreshadowed."

"The World Bank initiative can have a significant effect in developing countries, and could also push the science of alternative accounting further down the road," Talberth continued. "The initiative would reform the lending policies and infrastructure projects authorized by the World Bank to properly account for the impacts on ecosystem services, and help establish accounting methods that could be adopted on the national level."

As Talberth noted in his article, "The movement to 'green' or replace GDP has proceeded in fits and starts for decades. However, 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 told SocialFunds.com, "The field of non-market valuation of natural assets has improved dramatically over the last 15 years. The methods that are out there are good enough, and I think we're ready to demonstrate this concept."

He continued, "We need to resuscitate the idea of a US Sustainable Development Commission which, among other things, would be charged with doing sustainability reporting for the United States, using rigorous metrics."

Asked about the effect of the initiative on corporate accounting methods, Talberth said, "What companies do depends on how well they are regulated. There is a business case for knowing whether the natural resources used are sustainable. A good company will already know this."

"Sustainable investors are going to want to see some version of green accounting incorporated into corporate sustainability efforts," he added.

 

 
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