The case for natural capital accounting

Case studies in the Philippines demonstrate the importance of timely geospatial information in natural capital accounting, which harmonizes environmental sustainability with economic exigencies.

When gauging living standards, there is a strong case to be made for natural capital accounting to complement gross domestic product (GDP). So what is natural capital, and how can geospatial professionals play a role? As illustrated by case studies in the Philippines, natural capital accounting is imperative in harmonizing environmental sustainability with economic exigencies, and timely geospatial information is crucial.

Gross domestic product (GDP) indicates how much monetary income or output a country creates in a year. When politicians talk about the standard of living, growth or recession, and make comparisons with other countries, they tend to rely heavily on GDP as one of the key indicators in the ‘national accounts’. The problem is that GDP is an incomplete measure of living standards as it does not account for factors like health, environmental quality and social well-being. In other words, GDP is only a partial indicator of a nation’s wealth over the long term, and rising GDP does not necessarily mean that living standards are improving.

As illustrated by a number of recent books, realization is dawning that GDP does not go far enough to measure socio-economic value. For example, the book called Value(s) – Climate, Credit, Covid and How We Focus on What Matters, by Mark Carney, asks why it is that the things we value most – from the environment to frontline workers to keeping children well fed and educated – are so often neglected by politicians and the financial markets.

Rethinking the sustainable economic path

Natural capital accounting offers the solution. It complements GDP to provide a fuller picture of trends in living standards, allowing us to value the changes in natural capital through the changes on the value of ecosystem services it can offer. Accounting for changes in natural capital allows us to measure the magnitude of environmental depletion in moving towards a sustainable economy, centred on providing for the needs of both the present and future generations. Furthermore, the economic recovery after the COVID-19 pandemic is an opportunity to rethink the sustainable economic path, focused on all forms of capital: human, natural, human-made and social.

Why should you care?

First and foremost, you should care because our stewardship of the planet on which we live has been abysmal since the industrial revolution and it is our primary duty as human beings to do what we can to fix it. If rising GDP today comes at the expense of declining natural capital, then the world’s economic trajectory will be unsustainable. Further depletion of the natural ecosystems would undermine the provision of the basic social welfare: potable water, clean air, public health, food. Unless we all do something about the impacts of climate change, the most vulnerable populations will be further disadvantaged.

More specifically, however, we – as geospatial, Earth observation and hydrospatial information professionals – can do something about the fact that we are currently not measuring the right things.  Peter Druker, the famous management consultant and modern philosopher, once said “You can’t manage what you don’t measure”. In a nutshell, our role in society is about measuring our most important asset: the planet on which we live.

The need for lots of geospatial data

The role of geospatial data in natural capital accounting lies in its ability to provide accurate, comprehensive and consistent location intelligence to determine the impact of development on ecosystem services. There are several reasons why we cannot produce authoritative natural capital accounts without geospatial information:

• Spatial context: Without knowing the location and distribution of natural assets, it is impossible to fully assess the socio-economic impact of any investment project. The more accurate that information is, the better the assessment of the total costs and benefits will be.
• Monitoring changes over time: With increasingly frequent revisits by Earth observation satellites, it is easier than ever before to monitor what economists refer to as ‘benefits realization’: are the improvements predicted at the beginning of a project actually being delivered?
• Risk assessment and management: Geospatial data aids in identifying where project risks need to include factors such as climate change, natural disasters or human activities, and how these risks can be best managed.
• Integration with economic data: Geospatial data has unique attributes that enable natural capital to be linked to economic activities, e.g. extent of health districts, location of mangroves, marine protected areas. This integration helps in understanding the dependencies of various economic sectors on natural resources and ecosystems.
• Decision support: Geospatial information provides a basis for better informed decision-making. Policymakers, investors, land managers and conservationists can all gain greater insights from analysis using geospatial data so that their decisions better balance economic development with the sustainable use and conservation of natural capital.

Case studies in the Philippines

The Philippines is ranked as one of the countries most at threat from sea level rise.  It has been at the forefront of global efforts to create natural capital accounts. It was an early participant in the global World Bank-led ‘Wealth Accounting and the Valuation of Ecosystem Services’ (WAVES) initiative.  The PhilWAVES report highlights the role that geospatial data plays in addressing the issues on the provision of ecosystem services brought about by the changes in natural capital. Two highlights from this work are:

• Reducing flood risks and improving water quality in Laguna de Bay

Laguna de Bay is a large lake in the middle of an increasingly densely urbanized area just south of the capital city, Manila. Water and ecosystem service accounts for the watershed that feeds the lake conclusively demonstrated that rapid soil erosion was the primary source of sediments pouring into the lake. These accumulating sediments were altering the lake’s total volume and ability to contain greater inflows, potentially affecting flood control. This scenario was exacerbated by the large number of people migrating into the area. The effects extend beyond the shoreline, as this ecosystem protects nearby Manila from flooding. Ecology and water accounts additionally showed that home sewage is by far the main source of contaminants in the lake. When debated with politicians and citizens, the natural capital accounts provided evidence that led to changes in planning regulations, behaviours of farmers and fisheries, and other targeted initiatives, such as connecting more residences to the sewer system. These changes are predicted to cut pollution by up to 80%.

• Monitoring threats to carbon sequestration in Palawan

The island of Palawan is one of the premier tourist destinations in the Philippines, but also an area of intensive agricultural expansion. The WAVES land account developed for South Palawan revealed a 150% increase in perennial crops (mainly oil palm and coconut plantations) between 2003 and 2014. During the same time period, the forest accounts showed that areas with closed canopies dropped sharply, causing a detrimental effect on carbon stocks. These changes, evaluated using geospatial data, value the annual carbon sequestration in Southern Palawan at between US$18 million and US$52 million. The data is being used to measure, report and verify efforts to lower emissions from deforestation and mangrove destruction. It is also informing decisions as part of the National Greening Program and to improve the Philippine Greenhouse Gas Inventory Management and Reporting System.

Conclusion

Natural capital accounts enable policymakers to strike a better balance between environmental sustainability and economic demands. Comprehensive, timely and more accurate geospatial information significantly improves the quality of natural capital accounts. In the Philippines, case studies illustrate how geospatial data has played an essential role in managing ecosystem services including water provision, carbon sequestration and flood prevention. However, there is still a huge understanding gap between geospatial practitioners and global decision-makers. It is hoped that the terms in this article will help industry professionals to speak the language of the economists and politicians, and step up to seeing them as key stakeholders.

What is natural capital?

The term ‘natural capital’ has come to the fore in the climate change debate. However, at a recent meeting of commercial geospatial industry leaders, less than 50% raised their hands when asked who had heard of it. Natural capital refers to the elements of the natural environment that currently receive insufficient consideration when making choices about managing the planet, e.g. land, forests, rivers, soil and other resources that businesses rely on to function.

The depletion of the world’s natural capital hinders poverty reduction and sustainable development objectives. Environmental assets, such as timber or fisheries, and ecosystem services, such as water filtration and carbon sequestration, are critical for human well-being and provide significant economic and social benefits.

The World Bank estimates that the global economy could lose US$2.7 trillion by 2030 (compared to business as usual) if certain ecosystem services collapse (pollination, carbon sequestration and storage, fisheries, and timber provision). In low-income countries, GDP could decline annually by 10% on average. Understanding the value of a country’s environmental assets is therefore key to sustainable development and economic growth.

Geospatial-related outcomes of COP28

At COP28, there were two agreements pointing to the need for improved geospatial evidence to underpin decision-making. The first concerned setting global targets to triple capacity from renewable sources, most prominently wind energy and solar power, both of which rely heavily on geospatial data analysis to determine optimum sites for generation. The second was that the loss and damage fund to support developing countries most heavily impacted by disasters resulting from climate change will start to be distributed during 2024. The mechanisms used to ensure just and equitable distribution will be heavily based on geospatial data.