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17 December, 2020 - 11:13 By Tony Quested

Green banks to end reign of greenbacks and GDP obsession

Leading economists from the United Nations and the University of Cambridge were meeting this week in a bid to end a global fixation with Gross Domestic Product as the primary indicator of economic health.

They argue that reliance on GDP as a barometer has rendered nature “invisible from national finances, intensifying the biosphere’s destruction by omitting its value from the systems that govern us.” 

The Cambridge and UN economists held a brains trust to launch a statistical standard that allows governments and banks to calculate the worth of natural dividends – from fish stocks and carbon sinks to reduced health burdens from purified air.

Almost a decade in the making, the new statistical approach, called Ecosystem Accounting, had its final consultation on the first of this month, and will go before the UN General Assembly next year with hopes of ratification as the global standard for measuring how the natural world underpins national economies.

Professor Diane Coyle, who leads ‘Beyond GDP’ research at Cambridge’s Bennett Institute for Public Policy, was a key speaker at Tuesday’s public summit.

She said: “A focus on GDP without proper regard for environmental degradation or inequality has been a disaster for global ecosystems and undermined social cohesion.

“Statistics are the lens through which we see the world, but they have made nature invisible to policymakers. Twenty-first century progress cannot be measured using twentieth century statistics.”

While many talk of the need to ‘build back better’ from the ravages of COVID-19, we cannot recover better without better information to guide us, says UN chief economist Elliott Harris, who also spoke at the Cambridge-hosted launch event.

“It is high time we moved beyond GDP and measured our wealth and success with tools that recognise the value of nature and people. The developments to our System of Environmental Economic Accounting are a giant leap in the right direction,” Harris said.

As part of a global team, economists from Cambridge’s Bennett Institute for Public Policy such as Dr Matthew Agarwala have been working with the UN to develop aspects of the new accounting methods. With his colleague Dimitri Zenghelis, Agarwala has written a guide for treasuries and central banks that the UN will roll out as a training programme.

“Some of the ways we currently value nature, what we term ‘natural capital’, are just absurd,” said Agarwala. “Most parks in the UK, including huge parks in major cities, have an asset value of £1, because they can’t be sold.

“Local Authorities have a balance sheet with a £1 asset that costs many thousands in annual upkeep. But this ignores revenues from higher property values in the vicinity. Even worse, it ignores the value of outdoor recreation, cleaner air, and the greatly reduced impact on local health services this creates.

“We now have the framework for putting that information into everyday economic decisions and scaling it up to the national level,” he said.

The Bennett Institute also works closely with the UK’s Office for National Statistics, early adopters of Ecosystems Accounting during its previous “experimental” phase. ONS work published last year used these methods to reveal the startling value of nature.

Just the green spaces and rivers in urban areas saved almost £163m annually in healthcare costs and urban woodland was estimated to be worth £89m a year through carbon removal, proponents of the new order revealed. Recreation spent in nature just in urban areas was valued at some £2.5 billion a year in the UK.

Dr Agarwala said: “We need statistics that can guide us through the new challenges we’re facing: biodiversity loss, inequality, climate change, and automation.”

Cambridge is home to Prof Sir Partha Dasgupta, considered the father of the modern movement to knock GDP from its pedestal and infuse economics with the worth of life on Earth: from nature to the value of human connection.

Sir Partha said this week: “Ecosystem services are simply absent from most national statistics. Vast intellectual energy is given to estimating GDP but there is little data on the biosphere’s capacity to meet human demand for natural goods and services.” 

Dasgupta describes natural capital as a necessary step towards the creation of “inclusive wealth”, in which economics accounts for everything from health and skills to the value of communities – all fundamental to productivity and all currently gaping holes in national balance sheets.

• PHOTOGRAPH: Elliott Harris, Assistant Secretary-General and Director of the UN Environment Programme (UNEP) New York Office. Credit – UN Photo/Manuel Elías

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