GDP or natural capital? Ecosystem degradation threatens growth

The problem also stems from the limitations of traditional economic indicators. GDP measures the annual flow of goods and services produced, but it does not fully reflect the evolution of a country’s overall wealth, nor does it fully account for resource consumption and the deterioration of ecosystems. To assess prosperity, therefore, natural capital – comprising resources, ecosystems and the services they provide – must be considered alongside produced capital and human capital. Between 1992 and 2014, according to the report *The Economics of Biodiversity* cited by the UK Treasury, per capita produced capital doubled globally, whilst human capital grew by around 13 per cent. Over the same period, per capita natural capital fell by almost 40 per cent. 

One solution may lie in integrating environmental accounting into national statistical systems. The United Nations System of Environmental-Economic Accounting (SEEA) enables the measurement of the state of ecosystems and the services they provide, by estimating the present value of expected benefits and using physical indicators to monitor changes in natural capital. A forest, for example, can contribute to national wealth through timber production, carbon sequestration, water regulation, erosion control and recreational services. Not all of these benefits, however, can be translated into a monetary value. Biodiversity strengthens ecosystem resilience, but its intrinsic and insurance values cannot be fully monetised. The challenge does not necessarily lie in putting a price on every element of nature, but in making visible the changes in natural capital and the economic consequences of its loss. The conversion of a wetland, for example, should be assessed by considering not only the value of the buildings constructed, but also the reduction in ecosystem services.

The issue is also set to play a significant role in international policy. In 2022, countries adopted the Kunming–Montréal Global Biodiversity Framework, which sets out 23 targets for the protection and restoration of ecosystems and aims to mobilise at least $200 billion a year by 2030, from all sources of funding. COP17 on biodiversity is set to take stock of the implementation of these commitments.

Private capital can contribute through green bonds, impact funds and blended finance instruments, which combine public or philanthropic resources with private investment to reduce project risk. ‘Blended finance,’ explains Bienvenu, ‘uses public or philanthropic funding to mitigate the risks associated with a project and attract private investors. For example, a development bank could guarantee a portion of the potential losses associated with a forest restoration project, whilst private investors would provide the remaining capital and generate revenue from sustainably sourced timber, carbon credits or payments for nature conservation.”

However, for biodiversity to also become an economically sustainable investment opportunity, projects are needed that can generate verifiable results and credible funding models. The availability of capital alone does not guarantee either the restoration of ecosystems or an adequate return. “Some of La Financière de l’Echiquier’s funds assess companies not only on the basis of their expected financial performance, but also in terms of their contribution to the United Nations Sustainable Development Goals,” explains Bienvenu, “drawing in particular on the LBP AM Group’s biodiversity policy.”

Incorporating natural capital into economic and financial assessments does not mean replacing GDP, but rather recognising its limitations. The question is whether today’s growth is increasing overall wealth or depleting resources and services that are essential for future growth.