22nd September 2022, by shannon@redpaint

Background: GDP and beyond 

Since the Second World War a country’s success has usually been measured by its Gross Domestic Product (GDP). The logic being that as a nation’s citizens become better-off, they are able to meet more of their basic human needs, and ultimately this improves their wellbeing. However, as nations have developed and basic needs are more commonly being met, the link between GDP and wellbeing becomes less obvious. GDP also struggles to account for benefits that can’t be monetised and traded on markets – community values, social values and environmental benefits – these benefits often fall under the umbrella of Social Capital and Natural Capital. GDP also doesn’t account for unpaid work, such as social care and housework, as I write this in the middle of the COVID-19 pandemic, the value of social care and volunteers is huge and immeasurable. Furthermore, GDP increases due to events that have a large expenditure, including environmental disasters or war.  Bobby Kennedy described GDP by saying “it  measures everything  in short,  except  that which makes life worthwhile.” It is clear that GDP is no longer a suitable proxy for wellbeing, and a wider approach needs to be taken.  

Natural capital is our ‘stock’ of land, air, water and biodiversity. This stock underpins the economy by producing value for people, both directly and indirectly. These natural assets (habitats and ecosystems) are valuable to people because of the benefits they provide. These benefits, or ecosystem services, can be sorted into three broad categories;
 

• Provisioning services are goods that we can extract such as food, water or timber;
   
• Regulating and supporting services are those processes that keep our environment in a liveable state for humans to live in; water filtration, air purification and water retention (to reduce flooding) are three examples;
   
• Cultural services are harder to define, they are benefits we derive from the environment through experience, and are often intangible and hard to confidently define. These cultural services include spiritual, inspirational, religious and aesthetic values and also includes benefits from tourism and recreation.  

 

Most of the benefits provided by nature can’t be traded (e.g. how can you trade aesthetic values?) and therefore don’t have a ‘market-value’ or monetary values. In essence this means that these benefits aren’t taken into account in economic decision making. These benefits aren’t captured in Gross Domestic Product (GDP), the traditional metric for understanding human wellbeing, this is despite the large, obvious and direct contribution of the environment to human wellbeing. 

 
What is the Natural Capital Asset Index? 

An indicator was required to more directly track the contribution of Scotland’s natural habitats to the wellbeing of Scotland’s citizens. In 2015 Scottish Natural Heritage developed its Natural Capital Asset Index (NCAI). The NCAI is a change indicator and tracks changes in natural capital since the year 2000; unlike other national natural capital accounts the NCAI does not use monetary figures and instead shows relative changes. It forms part of the Scottish Government National Performance Framework (NPF) focussed on sustainable and inclusive growth.  

The NCAI works on the premise that if we know the type and extent of habitats in Scotland, what benefits these habitats can provide, and how people value these benefits, we can attribute a relative value of ecosystem services to human wellbeing. This calculation can be repeated over time (annually) to understand whether our natural capital is creating more or less benefits over time. It also allows us to understand the types of benefits we are getting from the land, and can help decision making. The NCAI uses EUNIS classification (EUropean Nature Information System), this is used to differentiate different habitats in Scotland into clear categories. By using these categories, we can gain a better understanding of the benefits we will gain from these habitats (e.g. timber from forests, water retention from peat bogs).