Mainstreaming Natural Capital 2025

..to judge whether the path of economic development we choose to follow is sustainable, nations need to adopt a system of economic accounts that records an inclusive measure of their wealth...[that] includes Nature as an asset. Professor Sir Partha Dasgupta, The Economics of Biodiversity: The Dasgupta Review15 In recent decades, economists, ecologists and policy-makers have developed natural capital accounting to incorporate nature more effectively in economic systems. This approach, which recognizes the challenges faced by current economic models in capturing natural capital, forms part of the broader sustainable development movement that has spurred, among other initiatives, the Human Development Index (HDI) by the United Nations Development Programme (UNDP) and the UN’s Sustainable Development Goals (SDGs). The natural capital approach extends the economic concept of capital to the environment, conceptualizing stocks of natural resources as conventional goods worth restoring, maintaining and enhancing for their flows of productive value. Crucially, this includes systematic measurements and valuations of the “leaked” benefits not captured in prevailing economic indicators such as GDP or financial statements. The approach is essentially a decision-making framework that uses two connected processes – natural capital accounting and natural capital valuation. Natural capital accounting is the process of recording the status, health and integrity of specific natural assets and the flow of benefits these assets provide within specific periods.16 Natural 1.2 Natural capital approaches provide a clearer picture of nature’s value to business and societyCurrent economic models and related decision- making systems were developed around the 1930s. As policy-makers grappled with how to contain the Great Depression and support war efforts later in the 1940s, metrics such as GDP were invented to understand a country’s “produced capital” output in a given year – that is, the physical output of goods and services plus financial assets. Greater output meant a nation was producing more food, fuel, commodities, products, weapons and services associated with taking them to market. As these goods and services were associated with a higher standard of living, higher output became associated with economic strength. Metrics like GDP rapidly gained popularity despite economists documenting their limitations.6 Aggregate metrics such as GDP do not measure distribution of output creation, income or the overall stock of wealth. They offer a narrow interpretation of value that focuses only on “produced” capital, without accounting for natural, human or social capital. They also fail to factor in opportunity costs, including the costs of extracting resources versus the benefits of keeping them intact. However, given that abundant natural resources were available in the 1900s to produce sufficient goods for a smaller population, metrics such as GDP became synonymous with “growth”. As a result, economic models have encouraged growth at the cost of natural capital, which is consequently in alarming decline today. While the past century has advanced economic progress and human health, this has come at a significant cost to nature.7 The World Bank estimates that while produced capital per person rose by more than 47% from 1995 to 2020, renewable natural capital per person declined by 20%, reflecting sharp falls in biodiversity and ecosystem services.8,9 The stock of natural capital that is in most severe decline is renewable resources (e.g. forests, freshwater, fish, clean air) that are essential for sustaining life. Crucially, these can still be regenerated in time with the right investments. However, nature-negative financial flows totalled nearly $7 trillion in 2022, comprising $1.7 trillion of harmful public subsidies (mainly in agriculture and energy) and over $5 trillion in private sector impact.10 This far outpaces investment in nature, which totals around $200 billion annually. It is clear that legacy economic models are no longer fit-for-purpose. They perpetuate a system in which nature declines rapidly to support benefits for a larger and more demanding global population, in turn threatening the socioeconomic benefits that nature provides. At least half of global GDP is moderately or highly dependent on nature and is at significant risk of disruption from nature loss.11 Far more than half the output of many critical sectors (e.g. agriculture, energy, utilities, consumer goods) is similarly at significant risk of disruption.12 Moreover, many of the most concerning impacts on well-being are not captured in economic metrics. Nearly half the world’s population lives in areas facing water scarcity.13 Around 1 million species are at risk of extinction.14While produced capital per person rose by more than 47% from 1995 to 2020, renewable natural capital per person declined by 20% Mainstreaming Natural Capital: Advancing the Global Agenda to Integrate Nature in Decision-Making 6