Reflections on natural capital accounting at the … (2015): Reflections on natural capital accounting at the national level Sustainability Accounting, Management and Policy Journal;

Obst(2015):Reflectionsonnaturalcapitalaccountingatthenationallevel

SustainabilityAccounting,ManagementandPolicyJournal;2015;Vol.6Issue:3,pp.315-339doi:10.1108/SAMPJ-04-2014-0020Thisarticleis©EmeraldGroupPublishingandpermissionhasbeengrantedforthisversiontoappearhereatwww.ideeagroup.com.Emeralddoesnotgrantpermissionforthisarticletobefurthercopied/distributedorhostedelsewherewithouttheexpresspermissionfromEmeraldGroupPublishingLimited.'

SustainabilityAccounting,ManagementandPolicyJournal;2015Vol.6Issue:3,pp.315-339doi:10.1108/SAMPJ-04-2014-0020

Reflectionsonnaturalcapitalaccountingatthenationallevel:Advancesinthesystemofenvironmental-economicaccountingCarlG.Obst11InstituteforDevelopmentofEnvironmental-EconomicAccounting1.Introduction

Naturalcapitalanditsincreasingscarcityhavebeenattheheartofconcernsoversustainabilityforwellover40years(Meadowsetal.,1972;MA,2005;Rockströmetal.,2009).Asthekeydriversofnaturalcapital’sscarcityareeconomicgrowthandtherelatedincreasingconsumptionofgrowingpopulations,therehaslongbeendiscussionthatthemeasureofeconomicgrowth,grossdomesticproduct(GDP),hasinappropriatelybecomethemostwidelyadoptedmeasureofprogress(Kennedy,1968;Costanzaetal.,2009;Stiglitzetal.,2010).

Alternativemeasuresofprogressthatincorporatearangeofnon-economicfactors,includingnaturalcapital,havebeendevelopedformanyyears.High-profileexamplesincludetheHumanDevelopmentIndex(HDI;UNDP,2014)andtheGenuineProgressIndicator(GPI;Cobbetal.,1995).ManybuildfromthepioneeringworkofNordhausandTobinintheearly1970s(NordhausandTobin,1972).Nonetheless,howeverwidelypublicizedorrecognized,thesealternativemeasureshavenotdisplacedGDPasthefocalindicatorforeconomicanddevelopmentpolicy.Costanzareinforcesthisrealityinmakingthecasethat“thechancetodethroneGDPisnowinsight”(Costanzaetal.,2014).

Thispaperpresentssomereflectionsontherelativelackof“success”indisplacingGDPastheleadingmeasureofprogress,well-beingand/oreconomicwelfareinpolicycircles.ItdoessobyreflectingontheroleofaccountingframeworksinthemeasurementofGDPandfromthispositiondiscussesthepotentialofextendingtheseframeworksvianaturalcapitalaccounting.Suchextensionwouldhelptomainstreamthediscussionofenvironmentalfactorsineconomicanddevelopmentpolicythroughanintegratedmeasurementframework,perhapsreplacingsomeaspectsofthebroadermeasuresofprogressthathavedeveloped.Atthesametime,thepaperisnotintendedtoprovideafulsomecriticalreviewofdifferentmeasuresofprogress.

Intermsofaccountingperspective,thepaperdoesnotcoverthevariouswaysinwhichthebroadbodyofaccountingknowledgeandresearchhastackledthequestionofnaturalcapitalandsustainability(Gray,1990;BebbingtonandLarrinaga,2014).Further,thispaperdoesnotaimtocritiquethebodiesofworkthatmaybegenerallyconsideredasgreen,environmentalorwealthaccountingthathaveemergedfromtheeconomicsprofession(HamiltonandClemens,1999;Dasgupta,2009;Mäleretal.,2009;Barbier,2013).Instead,thereflectionsonaccountingcomefromtheperspectiveoftheSystemofNationalAccounts(SNA),i.e.theUnitedNationsaccounting-basedstandardsystemofmacro-economicstatisticsthatunderpinsthederivationofGDP.

Asalong-timenationalaccountant,theauthorhasspentthepastfouryearsworkingontheUnitedNations-ledprojecttoestablishinternationalstatisticalstandardsthatextendtheSNAandintegrateenvironmentalinformationwithinanaccountingframework.ThestandardswereadoptedbytheUnitedNationsStatisticalCommissionin2012,andwhileworkcontinuestoimplementandfurther



advancethisareaofaccounting,substantialandmeaningfulprogresswillonlybepossiblebyexpandingtheawarenessofthesedevelopmentsandseekinginputfromabroadrangeofdisciplines.Thegoalofthispaperisthustoraiseawarenessofthepotentialofaccountinggenerally,butnationalaccountingspecifically,tocontributetothemeasurementofprogress.

Thepaperisstructuredasfollows.Section2describestheroleofaccountinginthemeasurementofGDPandpointstothepotentialbenefitsthatarisefromtakinganaccountingapproach.Section3summarizesthedevelopmentofinternationalstatisticalstandardsonnaturalcapitalaccountingoverthepast20yearsthathaveemergedfromextensionstotheSNA.Akeymessageofthissectionisthatthedevelopmentprocesshastendedtobequiteseparatefromdevelopmentsintheacademicliteratureoverthistime.

Section4providesanoverviewofthecurrentstateofplaybydescribingthecontentoftheSystemofEnvironmental-EconomicAccounting2012(SEEA2012)–thebodyofworkrecentlyreleasedundertheauspicesoftheUnitedNationsStatisticalCommission.Section5reviewsthedevelopmentsintheSEEA2012,notinglimitationsandareasofrequiredresearch.Section6concludeswithreferencetocurrentinitiativesandtheroleofaccounting.

2.Measuresofprogress,GDPandaccounting

Sincethe1930s,theassessmentofcountries’progresshasmostcommonlybeenlinkedtogrowthinthemeasureofeconomicactivityknownasGDP.ThemeasurementofGDPhasbeenprogressivelyrefinedsincetheearly1950s,withitsconceptualbasissetoutinameasurementframeworkknownastheSNA.ThelatestversionoftheSNAwasadoptedbytheUnitedNationsStatisticalCommissionin2008(EuropeanCommissionandInternationalMonetaryFund,2009).

TheSNAenshrinesafocusoneconomiccapital,i.e.thosephysicalentitiesorintellectualproductsthatprovideongoinginputstoproductionandthegenerationofincome,asdefinedfromaneconomicaccountingperspective.Initsaccountingapproach,theSNAexcludesthedirectmeasurementofhumanandsocialcapital,andhasacoverageofenvironmentalornaturalcapitalthatisessentiallylimitedtotheextractionofresources.Indeed,naturalprocessesareexplicitlyexcludedfromthedefinitionofproductionthatsetsthemeasurementboundaryforGDP(EuropeanCommissionandInternationalMonetaryFund,2009,6.24).

Thefocusoneconomiccapitalallowsacomprehensiveandinternallyconsistentaccountingforallmarket-basedflowsofincome,butitdoesnotpermitabroaderassessmentofthesustainablegenerationofthatincomeorrecognitionofotherbenefitsthatcontributetowell-beingwhicharegeneratedfromtheomittedformsofcapital.Theideathatthereisadirectconnectionbetweenoverallwell-beingandmultipleformsofcapital–suchaseconomic,natural,socialandhumancapital–hasbeenestablishedformanyyearsineconomics(PearceandAtkinson,1993;AsheimandWeitzman,2001;Dasgupta,2009)andprovidesthebasisfortheinvolvementofaccountinginthisfield.

GiventheseseeminglyobviouslimitationsaboutthescopeandbasisofGDP,whatisitaboutGDPthathasmadeitsoenduring?Therearemanyreasonsbut,intheviewoftheauthor,anoftenoverlookedoneisthatGDPisforgedfromanaccountingframeworkwithalloftheinternalchecksandbalancesthatanaccountingsystemcontains.Themajorityofalternativeindicatorsofprogressdonothavetheseinternalchecksandbalances,evenincaseswheretheyincorporateindicatorsofcapitalandincome.

TherearefourkeyfeaturesofthenationalaccountssystemthatprovideGDP’srobustness.First,thereisadefinedproductionboundarythatdeterminesthosegoodsandservicesconsideredtobeproducedwithintheeconomyandthussetsthesizeofGDP.Second,thereistheadoptionofsupply



anduseprinciplessuchthattheremustbeabalancebetweenthetotalgoodsandservicessupplied(throughproductionandimports)andthetotalgoodsandservicesused(byotherbusinesses,government,households,forinvestmentorexported).Third,thereisacloserelationshipbetweentheproductionboundaryandtheassetboundarysuchthatchangestotheproductionboundaryortheassetboundaryoftenimplychangesintheother.Forexample,expandingproductiontoincludeunpaidhouseholdworkwouldalsorequirethatequipmentusedtosupportthiswork(fridges,washingmachines,etc.)wouldbeconsideredassets,whereas,atpresent,theyareconsideredconsumptionitems.Fourth,changesinassetsoveranaccountingperiodmustreconcilewiththeopeningandclosingbalancesheets.

Whilethesemaybefairlystandardaccountingprinciplesandrelationships,thiscombinationoffeaturespermitsGDPtobemeasuredequivalentlyinthreeways–intermsofproduction,incomesorexpenditures.Further,thealignmentofincomeandassetmeasurementthroughthecarefuldefinitionofmeasurementboundariessupportsconsistentrecordingandanalysisofchangesintheassetbaseandchangesinGDPandincome.Combined,thesefeaturesprovideadegreeofrobustnessnotfoundinmostotherindicatorsofprogress.

Incontrast,measuressuchastheGPIortheHDIbringtogetherarangeofindicatorsfromtheeconomic,socialandenvironmentaldomainsandthenweighttogetherthedifferentindicatorsinsomeway.Whileclearlyprovidingaggregateindicatorswithabroader,andmoreappropriate,scopeinmeasuringprogress,thereareconcernsabouthowtheseindicatorsareconstructed(forashortsummary,seeBartelmus,2014).

Fromanaccountingperspective,themajorconcernishowthecomponentthemesandindicators“beyondGDP”areselected.MostmeasuresthatgobeyondGDPtendtoworkbottom-upinthesenseofaddinginindicatorsofthosethemesthatwouldseemmostappropriateinabroaderconceptualizationofprogressorwelfare.(Seee.g.theconstructionoftheGPIwhichuseshouseholdconsumptionexpenditurefromthenationalaccountsandadjustsfor24differentsocialandenvironmentalcomponents;Cobbetal.,1995).

GDP,ontheotherhand,isdefinedtop-downbyfirstdeterminingaconceptofproductionandincludinganygoodorserviceconsistentwiththatconcept.Thisisnottosaythatthedefinitionofproductioniscorrect,immutableorcompletelyobjective,buttheapproachdoesconferalevelofstabilityoverthescopeofGDPinthefaceofchangingcircumstancethatisunusualintheindicatorspace.Further,theadoptionofthesame,agreed-upondefinitionofGDPinallcountriesprovidesaverystrongcomparativeframework.

Someofthesefeaturesareonesthatotherindicatorframeworksaretakingon.TheHDIisnowregularlycompiledforallcountriesfollowinganagreed-uponmethodology(UNDP,2014),andrecently,estimatesoftheGPIhavebeenreleasedforalargernumberofcountries(Kubiszewskietal.,2013).

However,theimportantlessonhereisthatGDPshouldnotbeviewedasanindicatorthatsimplyweightstogetheradiverseselectionofgoodsandservices.Ifthatwerethecase,thenGDPwouldhavebeentoppledoramendedmanyyearsago.Itisnothardtothinkofthingsthatmightbeincludedorexcluded.GDP,howevernarrowlydefinedinscope,drawstremendousstrengthfromitsaccountingroots,inparticularthefundamentallinksbetweenincome,productionandassets.Itisinunderstandingtheserootsandthepotentialtoextendoramendthemthatthereexistspotentialtoderivemorerobustalternativemeasuresofwell-beingandprogress.

Oneareainwhichthepotentialofaccounting-basedapproacheshasbeenexploredisknownaswealthaccounting.ThisareaofresearchemergedfrominitialworkbySolow(1974)andHartwick(1977)inthe1970sconcerningtheeconomicsofusingnaturalresources(whichwasbasedoninitialworkofLindahl(1933)onthedefinitionofincome).Theworkhasbroadenedtoconsiderother



formsofcapitalunderthegenerallogicthatthereisastrongrelationshipbetweenthesustainabilityofacountry’sconsumptionanditsuseofcapital.Dasgupta(2009)providesathoroughexpositionoftheconceptsandrelationships.

Thewealthaccountingtheoryhasbeenactivelyappliedinrecentyearsintwodifferentbutsimilarlyfoundedworks.First,inthedevelopmentofmeasuresofgenuinesavingsandnationalwealthbytheWorldBank(2011).Second,intheworkonthedevelopmentoftheInclusiveWealthIndex(UNU-IHDPandUNEP,2012).

Anotherapproachreflectingthepotentialofaccounting-basedapproachestogobeyondGDPhasbeendevelopedintheSystemofEnvironmental-EconomicAccounting(SEEA),anditisthisapproachthatisthefocusofthispaper.Unlikethewealthaccountingapproach,theapplicationofaccountingprinciplesintheSEEAisnotappliedonlyinrelationtothevalueofthevariousformsofcapitalandtheassociatedincomeandconsumption.TheSEEAalsoappliesaccountingprinciplestotheorganizationofenvironmentalinformationinphysicalterms(e.g.flowsofwater,energyandemissions)tosupportthedevelopmentofmorecoherentdataontheenvironmentandfacilitatetheintegrationofthosedatawitheconomicinformation.ThescopeandapproachoftheSEEAareexplainedthroughSections3and4.

AkeymotivationfordevelopingtheaccountingextensionsoftheSEEAisthatbyextendingthestandardeconomicaccountingframework,itwillfacilitatemainstreamingenvironmentalinformationwithinregulardiscussionsoneconomicanddevelopmentpolicy.Thus,ratherthansettingupalternativeandcompetingmeasures,theintentistoworkwithinthecurrentaccountingconstructsandestablishcomplementarymeasurestoGDPthatenableabroaderstorytobeconveyed.Whethersuchanapproachwillbemorepersuasiveandsuccessfulinbroadeningthediscussionisyettobefullytested,butitshouldberecognizedasadifferentwayforward.

Ofcourse,intheabsenceofdefinitiveaccountingapproachesthatcoverallaspectsofprogress,thecompilationofbroadindicatorssuchastheHDIandGPIaddsimmeasurablytothepublicdiscussionoftheseimportantissues.Itissimplynotedherethataccounting-basedapproacheshavecertainfeaturesthatsuggestmovingbeyondGDPinmeasurementtermsisnotonlyacaseofreplacingonebroadindicatorforanother.

3.Backgroundtothedevelopmentofinternationalstandardsinnaturalcapitalaccounting

Thepotentialandneedtobetterintegratemeasuresrelatingtonaturalcapitalwithinthenationalaccountsframeworkemergedthroughthe1970sand80s(Bartelmus,1987;Ahmadetal.,1989).ConsistentwitharequestfromthefirstUnitedNationsConferenceonEnvironmentandDevelopmentheldinRiodeJaneiroin1992(UnitedNations,1993a),theUnitedNationsStatisticalDivisionledthedraftingofthefirstinternationaldocumentonenvironmental-economicaccounting(UnitedNations,1993b).Thisdocument,IntegratedEnvironmentalandEconomicAccounting,becameknownastheSystemofEnvironmental-EconomicAccountingorSEEA.Itwasaninterimdocumentpreparedbytheworld’sofficialstatisticscommunitytoproposewaysinwhichtheSNAmightbeextendedtobettertakenaturalcapitalintoconsideration.

Sincethatinitialworkin1993,workonenvironmental-economicaccounting(nowmorewidelyreferredtoas“naturalcapitalaccounting”)hascontinuedsteadilywithintheauspicesoftheofficialstatisticscommunity.CountriessuchasTheNetherlands(StatisticsNetherlands,2013),Canada(StatisticsCanada,2014),Australia(AustralianBureauofStatistics,2012)andDenmark(StatisticsDenmark,2013)areamongtheleadersinthefield,butmanyothercountries,bothdevelopedanddeveloping,haveexperienceinthedevelopmentofvariousenvironmental-economicaccounts.

Keydevelopmentssince1993haveincluded:



• TheestablishmentoftheLondonGroupofExpertsonEnvironmental-EconomicAccountinglargelycomprisingtechnicallevelrepresentativesfromnationalandinternationalstatisticalofficesandwhichhasnowmet20times.

• Aguidancedocumentreleasedin2000titledIntegratedEnvironmentalandEconomicAccounting–AnOperationalManual(UnitedNations,2000).

• Anupdatetothe1993SEEAreleasedin2003,theSEEA-2003(EuropeanCommissionandInternationalMonetaryFund,2003).

• TheestablishmentofanoverarchingUNbodyforthisfieldofworkin2005–theUnitedNationsCommitteeofExpertsonEnvironmental-EconomicAccounting(UNCEEA)–undertheauspicesoftheUnitedNationalStatisticalCommissionandgiventhetaskofprogressinginternationaleffortsinthisarea.

• AdoptionoftheSEEA2012CentralFramework(UnitedNationsandEuropeanUnion,2014)astheinternationalstatisticalstandardintheareaofenvironmental-economicaccounting.Thisadoptionplacesworkinthisareaonapar,atleastconceptually,withthelong-standingSNA[1].

• ReleaseofSEEA2012ExperimentalEcosystemAccounting(UnitedNationsetal.,2013)asasynthesisofapproachestothemeasurementofecosystemsthroughanationalaccountinglens.

Overthepast20years,therehasbeenanimportantbroadeningoffocusinSEEA-relatedwork.Throughthe1980sandearly1990s,theprimaryfocuswasonextensionsandadjustmentstoGDP,forexamplemeasuresofdepletionanddegradation-adjustedGDP,andrecordingenvironmentalexpenditures.Discussionconsideredtherangeofwaysinwhichdepletionanddegradationmightbeestimated,valuedand,subsequently,incorporatedwithinthestructureofthestandardnationalaccountsanditsvariousmeasuresofproduction,income,savingandwealth.

Throughthe1990s,thisspecificfocusstartedtobroadentoconsiderwaysinwhichaccountingapproachesandstructuremaybeusefulintheorganizationofphysicalinformationonenvironmentalstocksandflowssuchaswater,energyandwaste.Thisdirectionbuiltonworktomodeltheeconomyinphysicalterms(Meadowsetal.,1972).ThisbroadeningoftheSEEAdiscussionreflectedarecognitionthataccountingprinciplescouldbeappliedwithoutreferencetomonetaryunits.

Thisbroaderapplicationofaccounting,whichhasbeenexpandedfurtherinrecentyearsthroughthedevelopmentofecosystemaccounting,confrontsthecommonconceptionthatadoptionofaccountingapproachesnecessarilyreliesonvaluation(inmonetaryterms)ofnature.Certainlytherearequestionsthatcannotbeansweredunlessvaluationisundertaken,forexampleadjustingmeasuresofGDP,buttherearesomeimportantadvantagesofapplyingaccountingprinciplesintheorganizationofdatainphysicalterms(seeSection4).

Onthewhole,thedevelopmentofnaturalcapitalaccountingasdescribedintheSEEAhastakenplaceoutsideofacademiaandhasreflectedaprocessmanagedbytheinternationalofficialstatisticalcommunity.Overthe20yearsfromthereleaseofthe1993SEEA,therehasbeenrelativelylittleacademicliteraturewhichdebatesaccountingalternativesfromanationalaccountingperspective.ExceptionsincludeHarrison(1993),Vanoli(1995),deHaanandKeuning(1996),NordhausandKekkelenberg(1999),PeskinanddeLosAngeles(2001),Vardonetal.(2007)andEdensandHein(2013).Instead,thedevelopmentanddebateoftheworkisreflectedindocumentspublishedbyvariousinternationalagencies(particularlytheUnitedNationsStatisticsDivision[UNSD]andtheStatisticalOfficeoftheEuropeanCommunities[Eurostat])andindocumentspresentedtothemeetingsoftheLondonGroupandUNCEEA.Essentially,theacademicliterature



doesnotreflectthesubstantialthinkinganddebatethathastakenplaceoverthepast20yearsinnationalaccountingandSEEAcircles.

Itwouldbewrongtoconcludethatthesedocumentsandpaperswerenotsubjecttopeerrevieworwerereportsofconsultantsengagedonlyonspecifictopics.IndeedtheprocessoffinalizingtheSEEACentralFrameworkinvolvedwellover100expertsthroughmultipleroundsofconsultationandreviewoverfiveyears.Atthesametime,byandlarge,thetechnicalcontentoftheSEEA2012CentralFrameworkmaybebestdescribedasacodificationofliteratureandthinkingdevelopedbefore2000.Thedocumenthasthustendedtoclarifythelanguageandmakechoicesaboutthetechnicalapproachtonaturalcapitalaccounting.Significantly,bymakingthesechoicesandreflectinganagreed-uponposition,ithasprovidedastrongerfoundationforgovernmentsandinternationalagenciestosupportworkinnaturalcapitalaccountingandinturnformabasisforfurtherresearchandextension.

Unfortunately,theeffectofdiscussionontheSEEAresidinglargelywithintheinternationalstatisticalcommunityhasmeantthatawarenessoftheworkoutsideofthatcommunityhasbeenlimited.ThishasbothreducedthediscussionwithintheSEEAcommunityofotherdevelopmentstakingplaceoutsideandmeantthatsomeofthepositivedevelopmentstakingplaceintheSEEAwerenotinfluencingotherthinking.However,since2012,thisdynamichaschangedsignificantly,andwhileitisstillearlydays,thebreadthofconnectionsisincreasinglyrapidly.Section6providesadescriptionofthenatureanddirectionofsomeoftheseconnections.

Thechangeddynamichasbeendrivenbytwothings.First,theadoptionoftheSEEACentralFrameworkandtheprocessleadinguptoitsreleaseprovidedaplatformfortheinternationalstatisticalcommunitytopromoteitsapproach.ThisplatformwasreinforcedbytheSEEA’sjointpublicationbysixinternationalagencies(UnitedNations,EuropeanCommission,FoodandAgriculturalOrganizationoftheUnitedNations,InternationalMonetaryFund,OrganisationforEconomicCooperationandDevelopmentandtheWorldBank)andthetimingofadoption,justaheadoftheRio2012conferenceonsustainabledevelopment.

Second,inframingthescopeoftheSEEACentralFramework,themembersoftheUNCEEAdeterminedthatsometechnicalaspectsofnaturalcapitalaccountingwereunlikelytogetbroad-basedsupport,particularlythevaluationofenvironmentaldegradation(asdistinctfromvaluingthedepletionofindividualresourcessuchastimberandfishresources).They,therefore,splitthedraftingoftechnicalmaterialintwo–theSEEACentralFrameworkontheonehandandasecondvolumethatbecameknownastheSEEAExperimentalEcosystemAccounting.

Inthissecondvolume,avarietyofissueswerebroughttogether,and,withouttherequirementtodevelopaninternationalstatisticalstandard,abroaderframingofnaturalcapitalaccountinginanationalaccountscontextwasundertaken.Thetimingoftheworkwasespeciallyimportantinthiscontext,asitwaspossiblefortheSEEAdiscussiononecosystemaccountingtotakeintoconsiderationtheemergingworkonecosystemservicesandecologicaleconomics.Theadvancesintheseareas–whichgainedmomentumafter2000–providedaready-madeacademiccommunityinterestedininter-disciplinaryworkandwhowerealsomakingconnectionsbetweentheenvironmentandtheeconomy.

Thesetwofactors,combinedwiththeincreasingrecognitionofdecliningnaturalcapital,havemeantthat:

• thethinkingoutlinedinSEEAExperimentalEcosystemAccountinghasbenefitedfromsubstantialinputfrommanynon-statistical,non-nationalaccountingexperts,includingeconomists,ecologistsandgeographers;

• theprocessfordevelopingandadvancingSEEAExperimentalEcosystemAccountinghasprovidedaplatformfortheseexpertstoengage;and



• thereistheopportunityfornationalaccounting-basedapproachestobeconsideredinotherapproachesandprojectsonnaturalcapitalassessment.

AproductofthisbroaderengagementhasbeenanincreaseinthenumberofacademicpapersandrelatedwritingfromtheexistingSEEAcommunityadmittedlyfromalowbase.ThepapersbyEdensandHein(2013)andObstandVardon(2014)areexamplesofthisdirection.Inmanywaysthispaperisaimedatestablishingfurtherconnectionsinthisimportantareaofworkandreflectstheinter-disciplinarydynamicthatmustbenurtured.

4.TheSEEA2012

Inlightofthisshorthistoryofnaturalcapitalaccountingasdevelopedthroughthechannelofofficialstatisticsandnationalaccounting,thissectionbrieflysummarizesthekeyelementsoftheapproachdescribedintheSEEA2012.TheSEEA2012comprisesthreevolumes:

• theSEEA2012CentralFramework;

• SEEA2012ExperimentalEcosystemAccounting;and

• SEEA2012ApplicationsandExtensions(UnitedNations,2014).

ThethirdvolumefocusesonwaysinwhichdataorganizedfollowingtheaccountingframeworkdescribedintheSEEACentralFrameworkcanbeappliedtotheanalysisofvariouspolicyquestionsandlinkedtootherdatasets.Thisvolumeisnotdiscussedfurtherinthispaper.

Thefocushereisonadescriptionoftheaccountingcontentofthefirstandsecondvolumesthatcollectivelyprovideacomprehensiveapproachtotheintegrationofenvironmentalinformationwithinformationonthemeasurementofeconomicactivityandwealth.

ThissectionprovidesasummaryofthemainaspectsofSEEA2012,includingtheaccountingprinciplesthatareappliedandadescriptionofthemaintypeofaccountswithinscope,namely:

• physicalflowaccountsforsubstancessuchaswater,energyandemissions;

• assetaccountsforresources(suchasmineralandenergyresources,timberandfishstocks);

• accountsformeasuringchangesinlandandecosystems;

• accountingforenvironmentaltransactions(includingenvironmentalprotectionexpenditure,environmentalgoodsandservices,environmentaltaxesandsubsidies);and

• asequenceofaccountsandaccountingfordepletionanddegradation.

FurtherdetailsinalloftheseareasofaccountingareprovidedintherelevantSEEA2012volume.

4.1Accountingprinciples[2]

Tofacilitatetheintegrationofenvironmentalandeconomicinformation,theSEEAusesasitsbasetheaccountingprinciplesoftheSNA.Amongthekeyprinciplesarequadrupleentryaccounting(wherebyeachtransactionisrecordedintheaccountsofthesupplierandconsumerinboththeirrealandfinancialaccounts),recordingonanaccrualbasisandvaluationattransactionorexchangevalues.

TheSEEACentralFrameworkdescribeshowtheseprinciplescanbeappliedinaccountingforstocksandflowsmeasuredinphysicalquantities(e.g.tonnesoftimber,cubicmetersofwater)byrecognizingthatthereisanunderlyingphysicalrealitytoeconomicactivity.Inthiscontext,



accountingapproachesprovideasetofrelationshipsbetweeninformationonstocksandflowsthatcanbeappliedinsituationswheredataarenotavailableinmonetaryunits.

4.2Physicalflowaccounts[3]

Physicalflowaccountsarethemostwell-developedoftheSEEAaccountsandhavebeenimplementedinmanycountries.Forexample,atleast33countriesareknowntohaveimplementedwateraccounts(Vardonetal.,2012).Physicalflowaccountsarealsocommonforflowsofenergy,greenhousegas(GHG)emissionsandwaste.Eachphysicalflowaccountisbalancedbyvirtueofusingasinglemeasurementunit(e.g.tonnes,cubicmeters,joules)andbyensuringthatallflowsbetweentheeconomyandtheenvironment,andwithintheeconomy,areconstrainedtosatisfythesupply-useandinput-outputidentities.

Thesupply–useidentityrequiresthatthetotalsupplyofaproductorinputisequaltothetotaluseofthesameproductorinput.Forexample,thetotalsupplyoftimberresourcesfromtheenvironmentmustequalthetotaluseoftimberresourcesbytheeconomy.Theinput–outputidentityrequiresthatforeachrecordedinputintoaneconomicunit(e.g.inputsofwater),thereisamatchingoutputfromtheeconomicunit(e.g.thereturnofwatertotheenvironmentplusevaporation).

ThescopeofphysicalflowaccountsispresentedinFigure1.Eachphysicalflowaccountconsiders,asappropriate,theflowsoftherelevantsubstancefromtheenvironmenttotheeconomy(naturalinputs),withintheeconomy(flowsofproducts)andfromtheeconomytotheenvironment(residuals).Accountsforwaterandenergytrackallofthesetypesofflows.AccountsforGHGemissionsfocusonlyonresidualflows.

Figure1.Physicalflowsofnaturalinputs,productsandresiduals

AuniqueaspectoftheSEEAisitsdefinitionoftheboundaryoftheeconomy.ItisdefinedinsuchawaythatthephysicalflowscanbedirectlyrelatedtothemonetaryflowsthatarerecordedinthemeasurementofGDP.GDPisdefinedbyaproductionboundary,thatisthesetofgoodsandservicesthatresultsfromproductionbyeconomicunits.TheSEEAdefinesthisproductionboundaryinphysicalterms.Theoutcomeisthatdirectrelationshipscanbemadebetweenstandardeconomic



accountingmeasuressuchasoutputandvalueadded,andphysicalmeasuressuchaswaterandenergyuse,andGHGemissions.

Thisuniqueaspectmaybeparticularlyimportantwherethephysicaldatasets(e.g.GHGemissioninventories)arecommonlycollectedwithoutconsiderationoftheprecisemeasurementscopeoftheeconomy.

Importantly,thephysicalflowaccountsoftheSEEAapplystandardproduct,industryandinstitutionalsectorclassificationssuchthateconomicdataandenvironmentalinformationcanbereadilycompared.Thisallowsstraightforwardandcorrectdefinitionofproductivityandintensityindicatorswherephysicalflowsarecomparedtoeconomicvariablessuchasvalueaddedandoutput.Further,withphysicaldatastructureandscopefollowingtheSEEA,extensionstoinput–outputtablesaremorestraightforward,thussupportingthederivationoffootprintandsimilarcalculations.ThegenericstructureofSEEAphysicalflowaccountsisshowninTableI.

Table1.Basicformofaphysicalsupplyandusetable

4.3Accountingforenvironmentalassets[4]

AccountingforenvironmentalassetsisattheheartoftheSEEA.Fromameasurementperspectivehowever,environmentalassetscanprovedifficulttodefineand,commonly,varyingtermsanddefinitionsareusedwithoutaclearunderstandingofthelinkstostandardmeasuresofeconomicassetsasdefinedintheSNA.Doublecountingormeasurementgapsarethereforerealrisks.TheSEEACentralFrameworkaimstobringclaritytothisareaofaccounting.

Inthefirstinstance,environmentalassetsaredefinedbroadlytoencompassthewholeofthebiophysicalenvironment.Thus,“Environmentalassetsarethenaturallyoccurringlivingandnon-livingcomponentsoftheEarth,togetherconstitutingthebiophysicalenvironment,whichmayprovidebenefitstohumanity”(UnitedNationsetal.,2013,2.17,p.13).

Itisthenrecognizedthatformeasurementpurposes,thisdefinitionmaybetackledfromtwodifferentbutcomplementaryperspectives.Inthefirstperspective,variouscomponentsofthebiophysicalenvironmentaremeasuredasindividualenvironmentalassets.Thesecomponentsincludemineralandenergyresources,soilresources,timberresources,fishandaquaticresources,otherbiologicalresourcesandwaterresources.AssetaccountsthatrecordtheopeningandclosingstocksoftheseresourcesandtheadditionsandreductionsinstockaredescribedintheSEEACentralFramework.ExamplesofthetypesofaccountingentriesareshowninTableII.

Importantly,themeasurementscopeofindividualenvironmentalassetsisnotlimitedtopurelynaturalresourcesandhenceincludes,forexample,fishinaquaculturefacilitiesandtimberresources



inplantationforests.Coverageofbothnaturalandcultivatedenvironmentalassetsensuresthatchangesinthecompositionofenvironmentalassetscanberecorded.

TableII.Generalstructureofthephysicalassetaccounts

Thesecondperspectiveonthemeasurementofenvironmentalassetsistoconsiderhowtheindividualenvironmentalassetsfunctionasasystemwithinagivenspatialarea,otherwisereferredtoasecosystemaccounting.Thus,ratherthanafocussimplyonthetimberresourcesinaforest,ecosystemaccountingconsidersthefunctioningoftheforestastheinterplaybetweenthetrees,thesoil,thewaterresourcesandtheothercharacteristics(e.g.biodiversity)andprocessesthatdefineanecosystem.Ecosystemaccountingisdescribedfurtherbelow.

Beyondthemeasurementofthephysicalstocksandflowsofenvironmentalassets,theSEEACentralFrameworkprovidesguidanceonthevaluationofindividualenvironmentalassets.Topermitintegrationwiththestandardeconomicaccounts,thevaluationprinciplesusedintheSEEACentralFrameworkarealignedwithSNA.Thismeansthatenvironmentalassetsarevaluedonlywithreferencetotheincomestreamsrecognizedinstandardeconomicaccounting(e.g.profitsfromtheextractionofresources,royaltyflowstogovernments,etc.).Otherpotentialinclusionsinthevalueofenvironmentalassets(amenitybenefits,filtrationservices,etc.)areconsideredinecosystemaccounting.

TheuseofSNA-basedvaluationprinciplespermitstheestimationofthevalueofdepletionofenvironmentalassetsinamannerconsistentwiththederivationofconsumptionoffixedcapital(depreciation)andusingameasurementscopealignedwiththeincomemeasuresofGDP.Consequently,theSEEACentralFrameworkisabletodefineacoherentdepletion-adjustedmeasureofGDP(UnitedNationsetal.,2013,section6.2.4,p.241).Itisnotedthatadistinctionisdrawn



betweenthedepletionofanindividualenvironmentalasset(e.g.thedepletionofoilandgasresources)andthedegradationofenvironmentalassetswherethebroaderdeclineinqualityandconditionofanecosystemisinevidence.Conceptually,themeasurementofdegradationisfarmorechallengingthanaccountingfordepletion.

Accountingforenvironmentalassetsmaybeofdirectuseinnaturalresourcemanagementandinassessmentofsustainableincomesandproductionofprimaryindustries.Further,asthevaluationapproachappliedisconsistentbetweendifferentnaturalresourcesandwithproducedassetssuchasbuildingsandequipment,itispossibletoaggregatethevaluesofdifferentassetstoobtainmeasuresofnetworthatthesectorandnationallevel.

4.4Accountingforlandandecosystems[5]

Accountingforlandisseenasdistinctfromthemeasurementofindividualenvironmentalassetssuchastimber,waterandsoil.IntheSEEA,landisseenasreflectingthespacewithinwhicheconomicactivitytakesplaceandenvironmentalassetsaresituated.IntheSEEACentralFramework,accountingforlandcomprisesaccountingforchangesinthecompositionoflanduseandlandcoverwithinacountry,notingthatchangesintheoverallareaofacountryarelikelytoberelativelyinfrequentaccountingconsiderations.

Accountingforecosystems,asintroducedabove,iseffectivelyanextensionoflandaccounting.Itaimstoaccountforthechangeinqualityorconditionofacountry’sspatialareas,wherethespatialareasmaybeclassifiedindifferentways:

• bytypeofecosystem(e.g.forests,wetlands,agriculturalland);

• byadministrativeunits;or

• bysomeothercriteria(e.g.rivercatchmentareas).

Declinesinecosystemconditionduetoeconomicorhumanactivitymaybeconsideredtoconstitutedegradation.

Inaddition,ecosystemaccountingcomplementsthemeasurementofecosystemassetsbyaccountingfortheecosystemservicesgeneratedbythoseassets.Ingeneralterms,thisisanapplicationofthestandardaccountingrelationshipbetweenincomeandcapital.Inlinewiththegeneraldirectionofworkonmeasuringecosystemservices,asinprojectssuchastheMillenniumEcosystemAssessment(MA,2005),TheEconomicsofEcosystemsandBiodiversity(TEEB,2010)andtheEuropeanUnion’sMappingandAssessmentofEcosystemsandtheirServices(Maesetal.,2013),SEEAExperimentalEcosystemAccountingrecognizesthatthescopeofecosystemservicesisbroaderthanthecontributionsthatecosystemsmaketothegenerationofgoodsandservicesmeasuredinGDP.Thus,thereareservices,suchascarbonsequestrationandstorage,floodprotection,waterpurificationandculturalservices(amongmanyothers),thatshouldberecognizedinacompleteaccountingsystem.ThecorollaryofextendingthescopeofecosystemservicesbeyondcontributionstoGDPisthattheproductionandincomeboundariesareenlargedcomparedtoGDPandthepotentialvalueofenvironmentalassetsisincreasedrelativetothestandardvaluationsofenvironmentalassetsdefinedfollowingtheSNAandtheSEEACentralFramework.

AlargenumberofaspectsofaccountingforecosystemsandecosystemserviceshavebeendescribedinSEEAExperimentalEcosystemAccountingbysynthesizingawiderangeofworkinthisarea.Nonetheless,thereremainmanymeasurementchallenges.Thesemeasurementchallengeslargelyreflectthefactthattherelationshipbetweentheincome(ecosystemservices)andthecapital(ecosystemassets)isfarmoremulti-facetedthanforstandardeconomicassetssuchasbuildingsand



machines.Thatis,ecosystemassetswilltendtohavemultipleownersandbeneficiariesandcangenerateavarietyofmixes(orbaskets)ofecosystemservices.

Thesecharacteristicsofecosystemshavetwoparticularaccountingimplications.First,itisnotstraightforwardtoassignthecostofanydegradationtoeconomicunits,asoneeconomicunit’suseofanassetmayhaveimpactsonmultipleeconomicunits.Second,forassetvaluationpurposes(andhencetoobtainestimatesofthevaluationofdegradation),itisnecessarytoassumeafuturepatternofuseoftheecosystembymultipleusersofmultipleecosystemservices.Bothimplicationsarenotconfrontedinstandardaccountingforproducedassetsthathavesingleowners/usersandsinglestreamsofincome.

Themainrationaleforlandandecosystemaccountingistheassessmentoftrade-offsinsituationswhereareasoflandmaybeusedfordifferentpurposes.Ifdecisionsaremadesolelyonthebasisofincomefromeconomicproduction,thetrade-offagainstotherbenefitsthatmaybeobtainedbutwhicharemoreofapublicgoodcharacterwillnotberecognized.Supportingtheassessmentoftrade-offsinforestrybetweentimberproductionandthebenefitsofcarbonsequestrationandwaterpurificationisanexampleofthetypeofdecisionthatmaybesupportedfromthistypeofaccounting.Landandecosystemaccountingshouldalsosupportmorestructuredreportingonoverallenvironmentalcondition.

4.5Accountingforenvironmentaltransactions[6]

Thepredominantfocusinnaturalcapitalaccountingisonintegratingenvironmentalinformationintostandardeconomicaccounts.However,alsoofinterestisthepotentialtogleaninformationfromstandardeconomicaccountsaboutactivitiesundertakenbyeconomicunitsthatmaybeconsidered“environmental”.

Tothisend,theSEEACentralFrameworkdefinestheenvironmentalactivitiesofenvironmentalprotectionandresourcemanagementasconstitutingascopethatcanbeusedtoclassifyvariousstandardeconomicflowssuchasoutput,valueadded,investmentandemployment.TheSEEACentralFrameworkdefinesenvironmentalprotectionexpenditureaccountstorecordexpendituresbygovernments,householdsandbusinessesthathavethepurposeofmaintainingorimprovingtheenvironment.TheSEEACentralFrameworkalsodefinestheEnvironmentalGoodsandServicesSectorandanassociatedsetofindicatorsthatmaybeusedtoprovideongoingestimatesofoutputandemploymentinenvironmentalactivitiesasashareofoveralleconomicactivity.

Tofurtheraidassessmentofthepolicyresponsetoenvironmentalissues,thisareaofaccountingprovidesdefinitionsforenvironmentaltaxesandenvironmentalsubsidiesandsimilartransfers.Particularlyataninternationallevel,consistentdefinitionofthesetypesofvariablespermitsanassessmentofalternativepolicyresponses.

4.6Thesequenceofenvironmentalaccounts[7]

Oneofthestrengthsofaccountingframeworksistheirabilitytodrawtogetherawiderangeofinformationinacomplementaryandinternallyconsistentway.Thisstrengthisdemonstratedinthedescriptionoftheconnectionsbetweenthedifferenttypesofaccounts,knowninnationalaccountingasthesequenceofaccounts.Thetypicalsequenceofaccounts,asshowninTableIII,linksproduction,income,consumption,saving,capitalformation,financialtransactionsandbalancesheets.

TheSEEACentralFrameworkaugmentsthestandardsequenceofnationalaccountspresentedintheSNAbyrecordingdepletionofenvironmentalassetsasacostagainstincomeinthesamewayasthe



depreciationofproducedassetsisseenasacostagainstincome.Indoingso,theSEEACentralFrameworkprovidesastandardmeasureofdepletion-adjustedGDPandrelatedmeasuresofnationalincomeandsaving.Thisdepletion-adjustedmeasuremayberegardedasanimprovedmeasureofeconomicactivity,asitincorporatesadjustmentforabroaderrangeofcoststhanusuallyrecognized.

TableIII.BasicSEEAsequenceofaccounts

5.LimitationsoftheSEEAapproachandrequiredresearch

ThereisnodoubtthattheSEEAhascometocoverawiderangeofaspectsofnaturalcapitalaccounting.ThedescriptionsprovidedintheSEEA2012provideimportantobservationsconcerningaccountinginphysicalandmonetaryterms;accountingforindividualenvironmentalassetsandtheirdepletion;accountingformorerecentissuessuchascarbon,biodiversityandecosystemservices;andaccountingforenvironmentalactivitiesandaspectsofgreeneconomicgrowth.Notwithstandingthisbroadcoverage,thereareanumberofaspectsoftheSEEA2012thatmustberegardedaslimitationsandasareasrequiringfurtherresearchandtesting.

5.1Coverage

Inthespaceoflimitations,theSEEAdoesnotincorporateaccountingforallformsofcapital.Thisisnotalimitationwithrespecttonaturalcapitalaccountingpersebut,inthecontextofmeasuringthesustainabilityofbroadernotionsofwell-being,itislikelythatexplicitlyincorporatinghumanandsocialcapitalisrequired.Consequently,SEEA-basedmeasuressuchasdepletionordegradation-adjustedGDPshouldnotbeconsideredequivalenttoindexesofwell-beingandprogresssuchastheGPIandtheHDI.Thegreatadvantageoftheseindexesisthattheydoprovideabroadandmorecomprehensivescope.

Atthesametime,astheSEEAintegratesenvironmentalinformationwithstandardeconomicdata,itmaybeappropriatetodevelopbroadermeasuresofprogressthatthemselvesincorporateaSEEA-basedindicator,suchasdepletionordegradation-adjustedGDP,ratherthanusingGDPorhouseholdconsumptionasaneconomicvariabletogetherwithanothergroupofindicatorstocaptureenvironmentalmatters.



WhiletheSEEAdoesnotincorporatehumanandsocialcapital,fromanaccountingperspective,someimportantadvancesinthisareahavebeenmadethroughtheavenueofwealthaccounting,asnotedinSection2.ItshouldbepossibletoseeimprovedconnectionsbetweenthewealthaccountingworkandtheworkbeingundertakenfortheSEEA,asitpertainstothemeasurementofnaturalcapital.Inparticular,theorganizationofinformationonthestockandchangesinstockofenvironmentalassetsinnon-monetarytermsusingtheSEEAshouldbeofdirectuseinthecompilationofwealthaccountingestimates.

Broadeningaccountingframeworkstoencompassso-calledmultiplecapitalsisalsobeingpursuedatacorporatelevelthroughtheworkoftheIntegratedInternationalReportingCouncil(IIRC)(IIRC,2013).Ofnote,incomparisontotheworkoftheSEEA,theIIRC’sintegratedreportingframeworkdoesnotdefineexplicitmeasurementorreportingboundariesforeachofitssixformsofcapital.Thishighlightsthelikelychallengesinfullyaccountingforallformsofcapital,astherearelikelytobeimportanttrade-offsbetweencapitaltypes(e.g.betweenproducedandhumancapital)andinter-dependencies(e.g.betweennaturalcapitalandhumanhealth/capital).

Theseissuesbecomeclearwhendefiningthescopeofvaluationfordifferentformsofcapital,which,foraccountingpurposes,requiresaclearlinkbetweenaflowofbenefitsandanunderlyingasset.Itislikelythatsomebenefitswillreflectacombinationofinputsfromdifferentformsofcapital,andhence,thedefinitionandattributionofvaluetospecificcapitaltypesislikelytobechallenging.

5.2Spatialscale

TheSEEAhasbeendesignedforapplicationatanationallevel.Thenatureoftheapproachisthustoenableconsistentrecordingofdifferentenvironmentalstocksandflowsacrossmultiplelocationsandecosystemtypes.Forexample,theassetaccountsfordifferentenvironmentalassetstakethesameformandthesupplyandusetablesforenergy,waterandotherenvironmentalflowsallusethesameSNAproductionboundarytodelineatetheenvironmentandtheeconomy.WhilethisapproachworkswellinthecontextoftheSEEACentralFramework,itisfarmorechallengingtoapplyatthelevelofecosystemswhicharemuchhardertodefineinspatialterms.Importantly,oneissuethathasnotbeenresolvedintheSEEAExperimentalEcosystemAccountingmodelishowbesttorecordthemultipleandoftenunknownecologicaldependenciesbetweendifferentecosystems.Whileatoneleveltheeffectofnotfullyarticulatingthesedependenciesmaynetoutatnationallevel,thisisnotstrictlythecaseandalsomakestheapplicationofthemodeltocorporateandgloballevelschallenging.Thisisanimportantareaoffutureresearch.

5.3Valuation

Valuationiscommonlyacontentiousissueinnaturalcapitalaccountingwithsomeviewingvaluationofenvironmentalassetsandtheirservicesasthecommodificationofnatureandhencenotconducivetoimproveddecisionmaking(McAffe,1999;KosoyandCorbera,2010),whileothersconsiderthatunlessthereisvaluation,therecannotbeintegrationormainstreamingofnaturalcapitalconsiderations(Costanzaetal.,1997;TEEB,2010;WorldBank,2011).TheSEEAhasthereforetrodacarefulline.Itisundoubtedlythecasethatfullintegrationwiththestandardeconomicaccountsrequiresvaluationofenvironmentalstocksandflows.Atthesametime,thereisasignificantamountofinformationinphysicaltermsonenvironmentalstocksandflowsthatmaybebetterorganizedinamannerconsistentwitheconomicdata(e.g.usingstandardindustryclassifications).Informationinphysicalterms,compiledregularlyovertimewithinanaccountingframework,wouldsupporttheprocessofmainstreamingthisinformationintodecisionmaking.Thismightinclude,forexample,integrationofphysicalinformationonnaturalcapitalintoriskmanagementframeworks.



Whenvaluationisundertaken,thereisnodoubtthatitisadifficulttask,astransactionsinenvironmentalassetsandservicesarenotgenerallyobservable.Notwithstandingthepracticaldifficulties,theSEEAtakesaparticularviewonvaluationrequiringthatforintegrationpurposes(withthestandardeconomicaccounts),itisnecessarytouseexchangevalues–i.e.thepricesatwhichtheassetsorserviceswouldbeexchangedifamarketexisted(SEEAExperimentalEcosystemAccounting,5.9).Thisconceptionofvalueisdifferentfromthatusedforeconomicanalysiswherethefocusiscommonlyonthechangeineconomicwelfareassociatedwithdifferentusesoftheenvironment.Welfare-basedvaluesarerelatedtoexchangevaluesusedforaccountingbutalsoincludeconsumersurplus,i.e.theadditionalbenefitthatconsumers/purchasersobtainbypayinglessthantheywouldhavebeenwillingtopayfortheasset,goodorservice.

Whilethisdistinctionbetweenwelfareandexchangevaluesisrecognizedbypractitioners(Batemanetal.,2011),mostfocusinthedevelopmentofenvironmentalvalueshasbeenfromawelfareperspectiveandonlyasub-setofmethodsexplicitlytargettheestimationofexchangevaluesforenvironmentalgoodsandservices.

Eventhoughexchangevaluesmaybetheappropriatevaluesforaccountingpurposes,theexclusionofconsumersurplusmeansthattherearesomeaspectsoftheenvironmentthatarelesslikelytobecapturedinaccountingframeworks.Forexample,valuesincludingconsumersurplusarelikelytoberelevantinbetterunderstandingourextensiveculturalconnectionstotheenvironmentandvariousintrinsicenvironmentalvalues.Whetherandhowsuchaspectsmightbeincorporatedintoaccountingframeworksisanimportantquestion.

5.4ResearchagendasoftheSEEA

BoththeSEEACentralFrameworkandSEEAExperimentalEcosystemAccountingcontainresearchagendas.Theyhighlightimportantissuesrequiringfurtherinvestigationanddeliberation.Someissuesconcernmeasurementandintegration,suchastheneedforwidelyadoptedinternationalclassificationsoflanduse,landcoverandecosystemtypestosupporttime-seriesandcross-countrycomparisons.Otherissuesrelatetoparticulartopicareaswheretheapplicationofaccountingprinciplesisnotwell-establishedorhassomeparticularchallenges.Examplesofthisincludeaccountingforsoilresources,thevaluationofwaterresourcesandaccountingforbiodiversity.

Afinalsetofissuesrelatestoestablishingamorecompleteintegrationofenvironmentalstocksandflowswiththestandardeconomicaccounts.Aparticularchallengehereisthedefinitionandtreatmentofecosystemdegradation.Thisarearequiresadditionaldiscussiontoconsiderboththevaluationofnon-marketenvironmentalflowsandhowthewell-establishedareaofexternalitiesfromeconomicscanbeappliedmosteffectivelywithinanationalaccountingsetting.

Inadditiontothesetheoreticalandconceptualmatters,awidearrayofpracticalchallengesexist(suchasthemeasurementofecosystemservicesandtheconditionofecosystemassets),anditisessentialthateffortstotestthecurrentdescriptionsofSEEAandrelatednaturalcapitalaccountingstandardsaresupported.Oneofthelessonsoverthepast20yearsfromthosecountriesthathavebeentestingvariousiterationsoftheSEEAhasbeenthattherearesubstantialbenefitssimplyfromattemptingtheaccountingapproach.Learningbydoingisverytrueintheaccountingspace.

6.Futuredirectionsfornaturalcapitalaccounting

Fromanofficialstatisticsperspective,theadoptionoftheSEEACentralFrameworkasaninternationalstatisticalstandardhasprovidedrenewedenergytotheintegrationofenvironmentalinformationintostandardeconomicmeasurementandaccounting.Thisintegrationisseenascentraltotheprocessofmainstreamingthediscussionofnaturalcapital,particularlyineconomic



andplanningpolicydiscussion.TherearemanydirectandrelatedinitiativestowhichtheSEEAisrelated,andthissectionprovidesasenseofjustsomeofthenaturalcapitalaccountingworkthatisunderway.

TheSEEACentralFramework’sstatusasastatisticalstandardobligestheUnitedNationsandotherinternationalagenciestoencourageandfacilitatethedevelopmentofstatisticalprogramsthatintroduceandmaintainnaturalcapitalaccountingatthenationallevel.Atthisstage,thereisnomandatoryreporting,butcountriesareencouragedtoadoptaflexibleandmodularapproachtotheimplementationofthestandards,takingintoaccountrelevantpolicycontexts,dataavailabilityandstatisticalcapacity(UnitedNationsetal.,2013,p.9).

Inthissetting,theUNSDhascommencedaprogramofraisingawarenessandsupportfortheimplementationofSEEA,includingdraftinganoverarchingimplementationguide(UnitedNations,2013)anddevelopingtrainingmaterial.UNSDalsohasrecentlycommencedajointprogramofworkwiththeUnitedNationsEnvironmentProgram(UNEP)andtheSecretariatoftheConventiononBiologicalDiversity(CBD)toadvanceecosystemaccountinginsevencountries–Bhutan,Indonesia,Vietnam,SouthAfrica,Chile,MexicoandMauritius.

AnaturalcapitalaccountingprogramthatisbeingadvancedbytheWorldBankisitsWealthAccountingandValuationofEcosystemServices(WAVES)initiative.TheWAVESprogramisdirectedatministriesoffinanceandplanningencouragingthemtoadoptnaturalcapitalaccountingasacentralpartoftheirpolicydevelopment.Therearecurrentlyeightimplementingcountries(WorldBank,2014).TheWAVESprogramadoptstheSEEAasitstechnicalguidanceforaccounting.

Stillattheinternationallevel,closeconnectionsarebeingdrawnbetweenthenaturalcapitalaccountingoutlinedintheSEEAandthedevelopmentofindicatorsforthesustainabledevelopmentgoals(SDGs)beingestablishedaspartoftheUnitedNationsPost-2015DevelopmentAgenda.Theconnectionhereisthatnaturalcapitalaccountingcanprovidetheorganizingframeworkforinformationoneconomic-environmentallinkagesandthuscanserveasabaseforimprovedmeasurementandassessmentinrelationtoanumberofdifferentSDGs.ThisisaparticularlyrelevantdevelopmentintheambitiontogobeyondGDPinassessingwell-beingandprogress,andinmeetingoneoftheobjectivesoftheCBD’sAichitargetstointegratebiodiversityintonationalaccountingby2020.

Inthecorporatesector,thereisanincreasingappetiteforintegratingenvironmentalinformationincorporatemeasurement,assessmentandreporting.BroadinitiativesincludetheworkoftheGlobalReportingInitiative(GRI),andtheInternationalIntegratedReportingCouncil(IIRC).ThereisspecificworkonnaturalcapitalaccountingprotocolsbytheNaturalCapitalCoalitionandaspartoftheUnitedNationsEnvironmentProgram–FinanceInitiative(UNEP-FI).Overall,whiletherearesomedifferencesbetweenaccountingatthenationalandcorporatelevel,themajorityoftheaccountingprinciplesarethesameandmuchofthethinkingunderpinningtheestablishmentofaccountingstandardsintheSEEAmaywellprovideabasisforthedraftinganddiscussionofsimilarstandardsatthecorporatelevel.Inturn,theworkthathasbeencompletedonaccountingfornaturalcapitalatthecorporatelevel,forexampletheenvironmentalprofitandlossstatementofPuma(2011),mayprovideinsightsintothechallengesthatremainfortheSEEA.

Anassociatedconsiderationisthat,onceimplemented,theSEEAislikelytoprovideindustry-levelbenchmarkinformationonenvironmentalstocksandflows.Suchbenchmarking(andinternationalcomparability)mayprovidearelevanttoolforcomparisonofcorporateaccountsandreports.Fromtheoppositeperspective,standardizedcorporatereportingcouldprovideveryusefulinputtonational-levelaccountingfortheseenvironmentaldimensions.Anotheravenueofcollaborationmaybeinthedevelopmentofdecision-makingsupporttools–suchasriskmanagementframeworks–intowhichnaturalcapitalconsiderationsneedtobeincorporated.



Alongsidethesepositivepotentialconnections,itmustberecognizedthatcorporateinitiativessuchastheIIRCandGRIarethemselvessubjecttovariousconcerns.Flower(2015)raisesconcernsaboutthefocusoftheIIRCeffortsoverthepastfouryearsashavingbecomeoverlyfocusedonbroaderconceptionsofvaluefromtheperspectiveofcorporationsratherthanseekingtoembedbroadernotionsofsocietalvalueandcostsofcorporateactivitywithincorporateaccountingpractice.Adams(2014)rejectstheseconcerns,highlightingtheimportanceofcorporationsbuildingabroaderunderstandingoftheiroperationsanddependenciesonmultiplecapitals.Importantly,however,bothauthorsrecognizetherelevanceofaccountingmovingbeyonditstraditionalfinancialcapitalbase.

ItisinthisbroadeningoftraditionalaccountingthatconnectionsbeingmadebetweenSEEAandvariouscorporateaccountinginitiativescanbedevelopedfurtherandanalignmentofconcepts,terminologyandstandardsmightbefacilitatedtotheextentappropriate.

Fromanacademicperspective,therearesomeimportantconnectionsthatremaintobebetterestablished.Fromapurelydatasupplyside,afullypopulatedsetofSEEAdatawouldprovide,overtime,ahigherqualitysetofbaseinformationforalltypesofanalysisatnationalandinternationallevel,suchasinput–outputanalysis,computablegeneralequilibriumanalysisandlifecycleandsupplychainanalysis.Itwouldalsofacilitatecross-countrycomparisonsofenvironmentalsustainabilityissuesandhasthepotentialtolinktoarangeofsocialdata(e.g.accesstowaterandenergy,nutrition),thusfacilitatingenhancedassessmentofsustainabledevelopment.

Fromaresearchperspective,therearealsoarangeofpotentialareasofengagement.Particularlyintheareaofecosystemaccounting,thereismuchrequiredresearchandtestinginrelationtotheassessmentofecosystemcondition,integrationacrossspatialscales,themeasurementandvaluationofecosystemservices,thedefinitionofecosystemdegradationanditsallocationtoeconomicunitsandotherareas.TheSEEA’saccountingframeworkmightthusprovideawayinwhichthedifferentaspectsofecosystemresearchcanbeplacedincontextratherthanbeingseenasdistinct,andpossiblycompeting,approaches.

Finally,regardingimprovingmeasuresofprogress,Costanzaandcolleaguesintheirarticle“TimetoleaveGDPbehind”observethat:

ThesuccessortoGDPshouldbeanewsetofmetricsthatintegratescurrentknowledgeofhowecology,economics,psychologyandsociologycollectivelycontributetoestablishingandmeasuringsustainablewell-being(Costanzaetal.,2014).

Whiletherehavebeenmanyattemptstodevelopalternativemetricsbycombiningindicatorsfromvariousdomains,thesealternativeshavenotledtotheunderlyingintegrationofdatafromthesedifferentdomains.Consequently,theseindicatorsfindthemselvesstandingsomewhataloneandincompetitionwithGDPanditssupportingbodyofintegratedeconomicinformation.

TheworkonSEEAandotherrelateddevelopmentsinnaturalcapitalaccountinginrecentyearssuggeststhat,ingoingbeyondGDP,accountingapproachesmayprovideanotherwayforward.Thispotentialliesinthecapacityofaccountingapproachestointegratedifferenttypesofinformationinarigorousanddetailedway.Withtheintegrationofdatainplace,thederivationofalternativemeasuresthatcomplementGDPcanfollowandtherebyleadtothemainstreamingofbroadermeasuresofprogressusingwell-establishedandwell-acceptedmethods.Overall,accountingmaywellbeessentialinestablishingthenewmetricsthathavebeenrequiredforsolong.



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Notes

1. FurtherdetailsonthehistoryofthedevelopmentoftheSEEAareprovidedinSEEACentralFrameworkChapter1.

2. Forfurtherdetails,seeUnitedNationsetal.(2013,Chapter2).3. Forfurtherdetails,seeUnitedNationsetal.(2013,Chapter3).4. Forfurtherdetails,seeUnitedNationsetal.(2013,Chapter5).5. Forfurtherdetails,seeUnitedNationsandEuropeanUnion(2014,Chapter5)andUnited

Nationsetal.(2013).6. Forfurtherdetails,seeUnitedNationsetal.(2013,Chapter4).7. Forfurtherdetails,seeUnitedNationsetal.(2013,Chapter6).

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