Accounting for Sustainability
Kirk Hamilton
Environment Department
The World Bank
Outline
Approaches to SD indicators
Net or ‘genuine’ saving
Issues – concepts, measurement
Approaches to SD indicators
Extended national accounts: SEEA, net
(genuine) saving, genuine progress indicator
/ ISEW
Biophysical accounts: ecological footprint
Unweighted indices: environmental
sustainability index, Living Planet index
Weighted indices: environmental pressure
indices
Eco-efficiency: resource flows / GDP
Indicator sets: UN CSD, various countries
Desirable characteristics for SD
indicators
Underlying framework
Numeraire / aggregation rules
Clear interpretation regarding
sustainability
Linkage to policy levers through
aggregates or sub-aggregates
Net (genuine) saving
Net saving is the change in the real
value of all assets (investment minus
depreciation minus net foreign
borrowing).
Net saving = (PV of social welfare)-1
Positive genuine saving indicates rising
social welfare; negative genuine saving
indicates that social welfare will fall in
the future.
Composition of net saving, 1999
Gross
ConsumpNet
Carbon
domestic tion of fixed Energy Mineral forest
dioxide Education Adjusted net
savings capital
depletion depletion depletion damage expenditure savings
Low income
Middle income
Low & middle income
High income
20.3
26.1
25.2
22.7
8.3
9.6
9.4
13.1
3.8
4.2
4.1
0.5
0.3
0.3
0.3
0.0
1.5
0.1
0.4
0.0
1.4
1.1
1.2
0.3
2.9
3.5
3.4
4.8
7.8
14.3
13.3
13.5
East Asia & Pacific
Europe & Central Asia
Latin America & Carib.
Middle East & N. Africa
South Asia
Sub-Saharan Africa
36.1
24.6
19.2
24.2
18.3
15.3
9.0
9.1
10.0
9.3
8.8
9.3
1.3
6.0
2.8
19.7
1.0
4.2
0.2
0.0
0.4
0.1
0.2
0.6
0.4
0.0
0.0
0.0
1.8
1.1
1.7
1.7
0.4
1.1
1.3
0.9
1.7
4.1
4.1
4.7
3.1
4.7
25.2
11.9
9.6
-1.3
8.3
3.9
Adjusted net saving vs GDP/cap 1999
50.0
40.0
Adjusted net saving, % of GDP
30.0
20.0
10.0
0.0
100
1000
10000
-10.0
-20.0
-30.0
GDP per capita
100000
Wealth/capita vs population growth, 1999
14%
12%
10%
Change in wealth per capita, % of total
8%
6%
4%
2%
0%
-1%
0%
1%
2%
-2%
-4%
-6%
-8%
Population growth rate, %
3%
4%
Conceptual issues
Asset accounts in monetary units
provide a consistent framework and
yardstick for measuring development
prospects.
The components of net saving (gross
saving, depletion, damage) can be
affected by policy, permitting tradeoffs in
the pursuit of sustainability.
Conceptual issues (2)
Negative net saving indicates
unsustainability by standard definitions.
The saving measure is directly related
to a looser definition of sustainability:
non-decreasing present value of social
welfare.
Measurement issues
Valuing stocks or changes in stocks is
difficult because it requires assumptions
about the future.
Certain environmental problems are
difficult to handle – e.g. vertical marginal
damage curves, biodiversity.
Trans-boundary pollutants (including
CO2) require assumptions about
property rights.
Measurement issues (2)
Social issues are problematic because
of the difficulty in identifying and
quantifying relevant assets and flows.
Aggregate asset values and adjusted
income measures are not particularly
useful for measuring sustainability.
Net saving, the change in the real value
of assets, is directly relevant for
measuring development prospects.
Conclusions
Net saving has a strong basis in theory, and
empirical testing is promising.
Complementary biophysical indicators will
probably always be required.
Net saving is a more useful indicator as the
breadth of assets accounted increases.
Even with the World Bank’s limited asset
coverage, there are 10-20 countries each
year with negative net savings.