For years, we have been developing the tools for Natural Capital Accounting (NCA), which translates into using an accounting framework to provide a systematic way to measure and report on stocks and flows of natural resources (SEEA) and ecosystem services. We use NCA along with the concept of “wealth” to properly connect sustainability with economic development. However, in practice, there is still work to be done towards natural capital and wealth investments. Before we can start “financing the gap," we must achieve consistency in our wealth estimates, increase and encourage the development of country-level wealth accounts, and change current paradigms of sustainable development. Failure to do this can stagnate progress in achieving measurable sustainable outcomes.
As the world moves toward an era of sustainable development, having a full picture of how to leverage past economic production into sustainable economies is crucial. Currently, how we consider economic, social, and environmental factors in finance, such as green accounting (Muralikrishna and Manickam 113), how we increase financial flow for sustainable development (green finance), and how we reinvest in the future all have less to do with markets and requires a pragmatic approach to transition from financing consumption to financing generation of wealth, the last, being a crucial call to action for sustainable development raised by Dr Matthew Agarwala during the release of The Changing Wealth of Nations 2024. What does this mean with the current state of art for NCA, and how is it different from increasing wealth attained by income?
There are two internationally recognized ways of measuring economic development: income and wealth. Under the concept of wealth, the measured capital is the stock embodying future opportunities, which is, in turn, a function of net investment. Unlike income, which also accounts for depreciation, wealth captures volume changes in our natural resources that can occur through natural disasters, stock discovery (World Bank 28), and more.
Economic substitutability of assets is a crucial concept for sustainable development and wealth generation, as it helps determine how assets are included in wealth accounts and keep track of economic gains to avoid double counting.