Accounting for Ecological Capital

by

Susan Ogilvy, Robert Costanza

• LAST REVIEWED: 31 March 2016
• LAST MODIFIED: 31 March 2016
• DOI: 10.1093/obo/9780199830060-0106

Introduction

In this article, ecological-capital assets are defined in keeping with economic and accounting convention as classes of durable nonfinancial asset that are used to produce future benefits. Ecological-capital assets are then the principal stock of ecosystem components that provide a flow of goods and services that provide public benefits or that can be transformed into goods and services for trade in markets. The term “natural capital” is synonymous with ecological capital (and is used more frequently in the literature). We prefer “ecological capital” only to emphasize that the other forms of capital (built, human, and social) are not “unnatural.” There is growing recognition that depletion and degradation of ecosystems are threatening the prosperity and stability of economies and societies around the world. This is fueling development of knowledge, policy, practice, and culture to halt and reverse this trend. Supporting these developments is the conceptual model of ecosystems as assets (ecological capital or natural capital) that generate a broad range of benefits for humans (ecosystem goods and services). Using this conceptual model, governments, nongovernmental organizations (NGOs), and corporations are beginning to develop accounting methods that would aid in recognizing, avoiding, and potentially reversing past depletion and degradation. The broad aims of these developments are to support teams of managers, practitioners, and policymakers to assure viability and sustainability of enterprises, cities, regions, nations, and the planet as a whole. The viability and sustainability of an enterprise (or nation) are dependent on the effect of their operations and consumption on the assets on which they rely. Judgment requires development of knowledge, methods, and tools for accounting for the effects of product production, sales, and disposal on assets, including human and ecological assets. Not only must these help recognize and avoid depletion, they must also assist people to develop a business case for investment in assets of ecological (and human) capital. Further, due to the dynamic complexity of the assets and their interrelationships, these tools must be practical and able to support continual innovation of technical, ecological, and social practices. Continual innovation of technical, ecological, and social practices requires assimilation of knowledge, techniques, and tools from a broad range of academic disciplines, including management, accounting, economics, psychology, sociology, and ecology. It also requires synthesis and adaptation of this knowledge with practitioner knowledge, including that from business, agriculture, and other industries dependent on natural and regenerative capital assets. This article has been prepared to support the synthesis and development of transdisciplinary research, methods, and tools for accounting for ecological capital. We have included a range of possible avenues of inquiry, research, and solution development.

Social Context

The context for accounting and economics is the assumed goals of optimization of business viability and sustainability and human success and well-being. Millennium Ecosystem Assessment 2005 presents a comprehensive synthesis of these relationships, and Dasgupta 2001 demonstrates the effect of the decisions of individuals and corporations on the state and trends of natural resources. The recognition that gross domestic product (GDP) is an inaccurate measurement of well-being is presented in Stiglitz, et al. 2010 and further argued in Costanza, et al. 2014.

• Costanza, R., I. Kubiszewski, E. Goivannini, et al. 2014. Time to leave GDP behind. Nature 505:283–285.

  DOI: 10.1038/505283a

  This paper argues that gross domestic product is a misleading measure of national success and that countries should embrace new metrics that provide a comprehensive picture of sustainable societal well-being.

• Dasgupta, P. 2001. Human well-being and the natural environment. Oxford: Oxford Univ. Press.

  DOI: 10.1093/0199247889.001.0001

  This book explores and explains the relationship of human quality of life to the health of the natural environment. It illustrates, with examples, how the value of the natural environment can be incorporated into economic theory and into the decisions of individuals and corporations.

• Millennium Ecosystem Assessment. 2005. Ecosystems and human well-being: Synthesis. Washington, DC: Island.

  An appraisal by over 1,350 experts of the state and trends of condition of the world’s ecosystems, including the scientific basis for action to preserve or enhance them. An excellent resource for corporations, the educated public, students, and policymakers.

• Stiglitz, J. E., A. Sen, and J.-P. Fitoussi. 2010. Mismeasuring our lives: Why GDP doesn’t add up. New York: New Press.

  An assessment of the limitations of GDP as a measurement of the well-being of societies, and the introduction of a range of alternative measures of economic and social welfare.