Beyond GDP: The shift to new and nature-positive measures of progress is gaining momentum

It has been more than half a century since William Nordhaus and James Tobin proposed to establish in common use a ‘Measure of Economic Welfare’ that adjusted GDP to include the value of unpaid work, leisure time and environmental damage. This work inspired an industry of efforts to adjust GDP, notably advancing approaches to measuring “natural capital”.

Despite these efforts, the doyen of economic measures, GDP, has not been knocked off its pedestal as the pre-eminent measure of progress. That is, until now. A wave of alternative measures driven by improved knowledge, changing circumstances and practical needs have highlighted the urgent need for, and appetite to, consolidate experience into a coherent framework for measuring what must count.

Over the years, several countries have developed headline measures of happiness, well-being and green progress — from the iconic case of Bhutan’s Gross National Happiness Index through to the likes of Finland and New Zealand. Moreover, numerous innovative measures have proved beyond doubt that alternatives can be meaningful, feasible and useful. These range from the UNDP’s flagship Human Development Index to the Living Planet Index managed by the Zoological Society of London with the World Wide Fund for Nature.

Less visible has been a silent revolution in integrating the state of nature, including measures on climate change, into accounting directly relevant to the workings of the global economy. These developments have not arisen through top-down declarations, but through bottom-up developments driven by policy and pragmatic needs.

The financial system, critical in shaping the global economy, has made progress in making climate and nature count. Central banks are integrating related risks into their financial stability analysis, with many advancing investor-level risk management and reporting requirements. Sovereign debt markets are increasingly taking nature, including climate, into account, driven by financial regulations, smarter credit ratings and a new generation of sustainability-linked financing instruments.

International trade rules are also catching up. Measuring nature has become a must-do as Europe implements carbon border adjustment measures and advances zero-deforestation requirements on importers of land use intensive products, notably food. Although contentious, such developments are the thin end of the wedge of nature increasingly counting in international trade and investment rules and norms.

National and regional economic and industrial plans increasingly take the green transition as a given; a seismic shift over just a decade. Such developments are embodied in everything from Brazil’s Ecological Transition Plan to the US’s Inflation Reduction Act and China’s industrial subsidy programmes. The global bioeconomy is emerging as the heavyweight counterpart to the trillion-dollar-a-year investment globally in clean tech.

This silent revolution remains, however, ad hoc with notable gaps. Carbon-intensive and nature-damaging businesses still do not pay for their impacts, including those benefiting from the multi-trillion dollar a year soft commodity markets, the flywheel of our global food economy. Despite much hand-wringing, there has been little progress in integrating measures of equity and poverty into measures of green GDP.

Conventional measures of GDP fail to capture the all-important balance sheet of progress, a long-standing gap highlighted by Nobel economics prize winner Mike Spence. Just like a business, we cannot rely only on cash flow data or a profit and loss statement to understand the health of the company — one needs the balance sheet to get a full picture. Likewise, greening GDP requires that we measure changes in the stocks of social and natural capital, otherwise we measure flows of economic benefits while ignoring, for example, the long-term implications of overfishing or destroying the world’s coral reefs.

It is time to move beyond the incomplete successes of the silent revolution in establishing a globally-agreed standard for making nature count, including climate. Taking such a step would have momentous practical implications for everything from how taxes are raised to the workings of trade tariffs and the deployment of capital and public finance.

The upcoming United Nations Summit of the Future in September 2024 is a pivotal opportunity to progress the adoption of such a standard. The summit will provide an historic opportunity to rethink our common future and the necessary changes in our approach to global governance. As part of this agenda, the summit could provide the logic and critical impetus for Member States to commit to adopting critical stocks as well as flows in measuring real progress.

Such an endorsement would build on on-going efforts by driving convergence of conceptual and technical clarity capable of capturing complex, multifaceted interests. Such a development would also reinforce progress in integrating climate and nature risks into a cohesive strategy to reform the International Financial Architecture by aligning and measuring progress of such efforts with more meaningful measures of progress.

It is rare in global political and economic affairs that doing the right thing aligns with doing something with relative ease and little if any regret. Embracing a commitment to rolling out globally a standardized measure of green GDP is such a case in point.