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In his April 2012 presentation at INET Berlin, Geoffrey Heal from Columbia Business School explores the urgent intersection of sustainability and economics through the lens of natural capital. He emphasizes the importance of treating natural resources as valuable assets that should be preserved and enhanced for future generations. Heal introduces the concept of ecosystem services — the myriad benefits provided by nature, such as climate stability and food production. As traditional metrics like GDP can misrepresent economic health, he advocates for a more sustainable approach to measuring economic growth that incorporates natural capital.
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Sustainability and Natural Capital GEOFFREY HEAL COLUMBIA BUSINESS SCHOOL INET BERLIN APRIL 2012
History • Theodore Roosevelt presciently said in 1907 • “The nation behaves well if it treats the natural resources as assets which it must turn over to the next generation increased and not impaired in value.” • On the wall of the entrance hall of the American Museum of Natural History.
Economics and Ecosystems • Witnessing emergence of new paradigm • Society’s capital – physical, human, intellectual, social and natural. • All are assets that yield a return and in which one can make an investment
Natural Capital • Natural capital – • Mineral resources • Systems – • lakes and rivers generate hydropower and are natural capital • Watersheds, soils, forests, fisheries, ….. • Ecosystems are assets and are part of natural capital • They provide valuable services – ecosystemservices – return on natural capital
Natural Capital • Two concepts coming together– • Naturalcapital (economics) and • Ecosystemservices (ecology) • Ecologists characterize value of ecosystems to society in terms of services rendered – climate stabilization, pollination, food production, waste decomposition, recreation etc.
Natural Capital • These services can be seen by economists as the return on natural capital • The economic value of natural capital is the present value of the ecosystem services it provides • (May be other sources and categories of value – intrinsic values etc.)
GDP misleads • Indian farmers lower water table 3m/yr, have to work harder to irrigate • Leads to an increase in GDP as they spend more on pumping • But really this is a disaster in the making, depletion of natural capital
GDP misleads • Greenhouse gases raise sea level – communities work hard to build sea walls • Raises GDP and so appears beneficial – but again is a disaster in the making – depletion of natural capital
Alternatives …. • Need a sustainably-oriented measure • UNDP’s HDI is more broadly-based, widely cited but doesn’t grapple with sustainability • World Bank’s ANS or Adjusted Net Savings is a good starting point – change in total capital stock, physical, intellectual, human and natural
Ecosystem Services • Frequently public goods • Frequently non-market goods • So far conventional in environmental economics • Frequently uncertainty about functional relationships between state of an ecosystem and services it provides
TABLE 4-1 Classification of Total Economic Values for Ecosystem Services SOURCE: Adapted from Barbier et al., (1997) and Barbier (1994).
TABLE 4-2 Classification of Valuation Approaches SOURCE: Adapted from Freeman (1993a).
