matthew agarwalaMatthew Agarwala outlines the contribution natural capital accounting can make in meeting the challenge of Climate Change.




In a recent article, my co-authors and I made the case for natural capital accounting in both the public and private sectors and called for greater integration between research on climate change and natural capital. The value of natural capital, which is conservatively estimated to exceed USD $40 trillion, is too great to leave off the balance sheet.

But if you’re reading a blog hosted by the Natural Capital Initiative, you probably already know that. You could also identify myriad ways in which the environment benefits people and economies: forests and wetlands purify air and water while sequestering carbon; microorganisms breakdown waste, recycling essential nutrients; and oceans regulate climate while providing a key source of animal protein. Yet, overfishing, extensive deforestation and the consumption of fossil fuels all boost output and, by association, GDP. Our output-oriented corporate and national accounting procedures actually provide a perverse incentive to degrade and deplete natural capital stocks. But focussing on GDP while we eat our capital masks lurking problems such as collapsing fisheries and land degradation.

How can accounting help? Well-designed natural capital accounts would contain vital information about our dependence and impact upon the natural world and could potentially identify unsustainable trends before tipping points are reached. But the extent to which such accounts are fit for purpose hinges on how they integrate with entrenched decision-making processes and broader agendas such as combatting climate change.

In fact, natural capital and climate change are very closely related and should be considered in parallel for a variety of reasons:

  1. Carbon accounts are already directly included in natural capital accounts.
  2. Climate change, economic activity and natural capital all impact upon each other and key feedback loops need to be understood.
  3. Keeping them separate raises the potential for unintended consequences and conflicting policy agendas.

This last factor presents a particularly interesting challenge to natural capital researchers. While decarbonisation is an important climate objective, there may well be circumstances (e.g. if hydroelectric dams disrupt fisheries and downstream agriculture) under which the benefits of emissions reduction are outweighed by the costs. Informed by robust environmental valuation, natural capital accounts can help identify and compare these trade-offs, offering guidance on where conservation and investments are most needed.

Natural capital accounting is gaining momentum, but whether it becomes a meaningful tool for achieving sustainability depends on our ability to develop incentives to maintain and invest in natural capital… $40 trillion is a big incentive.

Matthew Agarwala is a Senior Research Associate at The Centre for Social and Economic Research on the Global Environment (CSERGE), based at the University of East Anglia, and a PhD Candidate in Environmental Economics at London School of Economics. Matthew previously held a research fellowship with NCI during which he researched natural capital accounting, and will be taking part in a session on economic and ecological principles at our upcoming summit; Valuing our Life Support Systems in November.