Accounting for Sustainability

1
Accounting for Sustainability

• Kirk Hamilton
• Environment Department
• The World Bank

2
Outline

• Approaches to SD indicators
• Net or genuine saving
• Issues concepts, measurement

3
Approaches to SD indicators

• Extended national accounts SEEA, net (genuine)
  saving, genuine progress indicator / ISEW
• Biophysical accounts ecological footprint
• Unweighted indices environmental sustainability
  index, Living Planet index
• Weighted indices environmental pressure indices
• Eco-efficiency resource flows / GDP
• Indicator sets UN CSD, various countries

4
Desirable characteristics for SD indicators

• Underlying framework
• Numeraire / aggregation rules
• Clear interpretation regarding sustainability
• Linkage to policy levers through aggregates or
  sub-aggregates

5
Net (genuine) saving

• Net saving is the change in the real value of all
  assets (investment minus depreciation minus net
  foreign borrowing).
• Net saving ?(PV of social welfare)??-1
• Positive genuine saving indicates rising social
  welfare negative genuine saving indicates that
  social welfare will fall in the future.

6
Composition of net saving, 1999
7
Adjusted net saving vs GDP/cap 1999
8
?Wealth/capita vs population growth, 1999
9
Conceptual issues

• Asset accounts in monetary units provide a
  consistent framework and yardstick for measuring
  development prospects.
• The components of net saving (gross saving,
  depletion, damage) can be affected by policy,
  permitting tradeoffs in the pursuit of
  sustainability.

10
Conceptual issues (2)

• Negative net saving indicates unsustainability by
  standard definitions.
• The saving measure is directly related to a
  looser definition of sustainability
  non-decreasing present value of social welfare.

11
Measurement issues

• Valuing stocks or changes in stocks is difficult
  because it requires assumptions about the future.
• Certain environmental problems are difficult to
  handle e.g. vertical marginal damage curves,
  biodiversity.
• Trans-boundary pollutants (including CO2) require
  assumptions about property rights.

12
Measurement issues (2)

• Social issues are problematic because of the
  difficulty in identifying and quantifying
  relevant assets and flows.
• Aggregate asset values and adjusted income
  measures are not particularly useful for
  measuring sustainability.
• Net saving, the change in the real value of
  assets, is directly relevant for measuring
  development prospects.

13
Conclusions

• Net saving has a strong basis in theory, and
  empirical testing is promising.
• Complementary biophysical indicators will
  probably always be required.
• Net saving is a more useful indicator as the
  breadth of assets accounted increases.
• Even with the World Banks limited asset
  coverage, there are 10-20 countries each year
  with negative net savings.