How much is the Great Barrier Reef worth? It’s breathtakingly beautiful, but it also does a lot of important jobs like purifying water and acting as a natural sea defence, all for free. A new article by the UK’s shadow environment minister and a group of academics urges policymakers and businesses to include nature in GDP calculations and on balance sheets.

Natural capital

If the world’s natural systems are in good shape, they provide countless free services worth trillions. In 2011, the World Bank estimated that the world’s natural capital was worth at least US$40 trillion – that’s 1.6 times the combined assets of the world’s biggest banks.

Clean air keeps us healthy and productive, clean water supports agriculture, coral and oyster reefs provide natural sea defences, and forests provide natural carbon capture and storage. Yet these benefits don’t figure in GDP calculations or on company balance sheets. By and large, we take nature’s added value for granted – though we certainly notice when it’s gone.

A commentary piece in the journal Nature Climate Change calls on governments and businesses to recognise the fact that they depend on these resources, account for them and invest in maintaining them. The world’s natural capital is increasingly under threat due to the effects of climate change, it says.

Barry Gardiner, a Labour MP and the UK shadow environment minister, who co-authored the piece, tells Carbon Brief:

“On its own a change in climate would not matter. What does matter is that plants and animals cannot cope with the rate of change in climate and as a result ecosystems services that they provide to us are breaking down. So as seas warm and corals die fisheries that feed millions of people are lost, as agricultural land is lost to desert in Africa yet more millions go hungry – these are the effects of climate change. But these ecosystems services are often not properly understood and valued.”

Natural capital and climate change 

So how does the idea of natural capital accounting relate to climate change, and why is it important to factor it into policy decisions? The article identifies three key areas.

First, there’s a structural element: carbon accounting is often included in natural capital accounts – and it’s crucial to include emissions in natural capital assessments due to their effect on the environment. But the article warns against allowing carbon accounting to dominate the natural capital story.

Focusing on carbon alone “may lead to perverse incentives and unintended consequences, particularly if emissions reduction comes at the expense of other natural capital,” it says. For instance, burning biofuels may reduce emissions – though that’s contested – but it may pose risks to food production and natural habitats.

Second, climate change, economies and natural capital are interlinked. For example, changes in water resources will affect farming as well as water-intensive industrial processes and supply chains – like the paper industry. This will have wider ripple effects throughout the economy.

Third, policies can overlap and compete. What might be seen as a ‘good’ climate policy, like encouraging hydropower, could have adverse effects on local natural capital – making water scarce or harming farming practices in some areas, for example.

Private sector, public sector 

There are already efforts underway to start calculating natural systems’ worth in the private and public sectors.

In the public and international sphere, these include the Natural Capital Protocol passed by legislators at the UN in 2010 and the World Bank’s natural accounting scheme. There’s also the UK’s Natural Capital Committee – and by 2020, the country’s Office of National Statistics will produce national natural capital accounts.

Companies are getting in on the act, too: sportswear manufacturer Puma is considered a trailblazer in natural capital accounting. Meanwhile, many financial institutions committed in 2012 at the Rio+20 UN conference to incorporate natural capital accounting and disclosure into loans and other financial products.

And shareholders are wising up to natural capital concerns, too. ExxonMobil shareholders recently asked the company to disclose the potential impact on fossil fuel reserves – one form of natural capital – of climate policies designed to limit climate change. Other fossil fuel companies such as Chevron and Total face similar pressure from shareholders.

Developing the concept 

But without coordination, there’s a danger that ‘natural capital’ could become a “meaningless buzzword”, the article warns. To streamline natural capital accounting efforts, it recommends that accounting measures that are applicable across sectors should be developed, with the UN overseeing international efforts and a corporate platform like the Natural Capital Coalition for the private sector.

It says companies should start to investigate how natural capital supports their supply chains and find ways to see where they are exposed to risks like flooding and drought – and take steps to become more efficient.

But there’s still a problem: natural capital doesn’t have a market price, meaning that private companies can’t fully account for it on their own. At present, even Puma’s natural capital accounts are produced separately from their normal profit and loss reports. Government must step in, the authors say, to encourage investment in nature and punish abuse of natural resources. Policymakers should also include natural capital accounting into national statistics, the article says.

Just today, the European Union published statistics suggesting that allowing global temperatures to rise by 3.5 degrees Celsius could cost the bloc at least â?¬190 billion – a welfare loss of around 1.8 per cent of current GDP. That cost would be far greater if loss of natural capital was properly recorded by governments and the private sector.