MERIT VALDSALU / 19 March, 2021
Breaking: UN Adds Natural Resources to Economic Reporting
The United Nations has adopted a landmark framework to integrate natural capital in economic reporting. Looking beyond gross domestic product (GDP) puts the world economy on the path to sustainable recovery.
“This is a historic step forward towards transforming how we view and value nature. We will no longer be heedlessly allowing environmental destruction and degradation to be considered economic progress,” commented António Guterres, UN Secretary-General.
Single.Earth has been envisioning a future where wealth is tied to the health of the ecosystem. What seemed like a utopian fantasy to some and a brave new world for others is coming to life in front of our eyes with the UN’s historic decision.
“Our end goal is to pave the way to nature-backed banking because that’s how we can integrate nature preservation into our everyday life so that the economy would support the preservation of nature,” we explained in an interview about Single.Earth on Forbes, “And that’s the only way that it can actually work.”
With innovation happening on so many levels, we’re excited to see the economy taking the right course towards healing the natural ecosystem. It is, after all, the one thing keeping the economy - and all of us - alive.
Meet the UN System of Environmental-Economic Accounting
The UN is making considerable effort to put the economy and environment into the same equation. In doing so, it is building a bridge between these two worlds that until this day, have been in a state of constant conflict.
The System of Environmental-Economic Accounting (SEEA) is an international statistical standard that:
Looks at economic and environmental data to measure how much the environment contributes to the economy.
Analyzes the impact that the economy has on the environment.
The relationship between the economy and the environment is a two-way street: most economic activities (if not all) route back to nature. We harvest natural resources as raw material for financial gain, like cutting down forests for timber or digging up wetlands for peat extraction.
Humans have also been creative in coming up with feasible business models that support nature destruction to make room for supposedly more rewarding assets. We’ve wiped off or degraded two-thirds of the world’s rainforests because of logging and agriculture.
An economic system disconnected from the natural world has led us to exactly where we are today: the verge of biodiversity loss and irreversible climate change.
That’s what the UN SEEA is here to address and why they’ve now integrated Ecosystem Accounting (EA) into the process.
Welcome to life, Ecosystem Accounting
The Ecosystem Accounting (EA) part of the SEEA framework measures ecosystems and ecosystem services from an economic perspective. This system uses standard accounting principles and accounts to measure the linkages between ecosystems and human economic activities.
Among other things, EA seeks to find answers to questions like:
How do ecosystems (and their services) contribute to the economy, social wellbeing, jobs, and livelihoods?
How are natural ecosystems and biodiversity changing over time? What are the main drivers of ecosystem degradation? What are the best opportunities for enhancement?
How can we manage natural resources and ecosystems to ensure continued services and benefits of nature - such as energy, food and water supply, flood control, carbon storage, and recreational opportunities?
How does different land use affect sustainability (e.g. agriculture, mining, housing development, habitat conservation, recreation)? What are the trade-offs for achieving long-term sustainability and equity?
The SEEA EA system is a turning point in humans’ relationship with nature. For the last few centuries, we’ve turned a blind eye to how the economy fosters the destruction and degradation of natural ecosystems. The EA framework is here to change this.
How does the UN account for ecosystem services? SEEA EA reports are broken down into the following accounts:
Ecosystem extent: accounts for the different ecosystem types and their areas within a country (e.g. forests, wetlands, agricultural areas, marine areas).
Ecosystem condition: organizes biophysical information on the different ecosystem types to provide insights into their ecological integrity.
Ecosystem services flow: measures the supply of ecosystem services (in physical and monetary terms) and the use of those services by households, enterprises, and governments.
Monetary ecosystem assets: records information on (the changes of) stocks of ecosystem assets based on ecosystem services’ monetary valuation.
Thematic accounts: organizes data on themes of specific policy relevance(e.g. biodiversity, climate change, oceans, and urban areas).
For the first time since World War II, GDP - that has been governing economic accounting - has received a counterpart to reflect the economy’s impact on nature.
Though the SEEA EA serves as a statistical tool, it lays the groundwork for a systematic way of monetizing ecosystem services that have not had value in the financial world until now.
Trading with ecosystem services like carbon and biodiversity
The UN acknowledges ecosystem services as an asset class that can be reported using traditional accounting principles. But how do you turn these assets into actual earnings?
Single.Earth has been innovating this space to help all landowners - private, institutional, communal, and governmental - generate profits from ecosystem services like carbon sequestration and biodiversity.
Here’s how Single.Earth turns nature conservation into a profitable business:
Carbon and biodiversity estimation: Single.Earth uses models that estimate these ecosystem services based on satellite data, big data analysis, and machine learning. In other words, we automate carbon and biodiversity asset accounting and make this information available to all landowners.
Tokenization of ecosystem assets: We tokenize carbon sinks, carbon sequestration, and biodiversity and turn those assets into digital goods. The traces of this information are stored securely in the blockchain.
Trading with carbon and biodiversity assets: Landowners can easily start trading ecosystem services on the Single.Earth marketplace. Organizations and individuals can buy digital carbon goods to compensate for their ecological footprint or biodiversity tokens as a tradable investment instrument.
Single.Earth’s digital carbon and biodiversity instruments are in perfect sync with the UN’s EA monetary assets. We complement the international statistical accounting principles with a market for trading those ecosystem assets.
Nature, the most valuable asset on this planet
The UN’s new accounting framework and Single.Earth’s tradable ecosystem service assets turn researchers’ predictions into reality: that land is worth more when left to nature than when farmed.
Even if people are interested only in financial gains (and not nature protection), it would still make sense to monetize natural resources for their ecological benefits rather than raw materials. Enabling all landowners to tap into the carbon and biodiversity markets is a game-changer for nature conservation.
For example, in research published in Nature Sustainability all of the forested sites analyzed were financially worth more with the trees left standing than with traditional logging activities. Moreover, more than 70% of all nature-rich areas were found to be worth more in net economic benefits when left as natural habitats.
While this study estimated carbon prices to be $31, other researchers predict the prices of nature-based carbon offset solutions to skyrocket in the near future.
According to VividEconomics, today’s carbon offset markets aren’t even close to maturity. In the coming decades, we’ll see these markets boom with prices reaching $120 per tonne by 2050. So the preservation of nature will become even more financially desirable from the carbon credits perspective.
These predictions, however, look only at carbon, neglecting the revenues we’ll see streaming in from the biodiversity offset markets that today are in a mere seedling phase.
Reporting on ecosystems and their services based on financial accounting principles brings hope to nature conservation. As sad as it may be, humans will make a systematic change towards nature protection only if it makes financial sense. That’s how the world operates in the current economic context.
TheUN’s decision to include ecosystem assets into economic accounting is the change we need to reshape our relationship with the environment. Only by understanding the connection between nature and the economy will we be able to shift our economy towards sustainability.
Single.Earth has already built business models around the new asset classes like carbon and biodiversity. This online platform makes these rapidly growing markets easily accessible to all landowners, regardless of their size or location.
As we’ve predicted, nature is becoming the new gold. The UN’s landmark decision is proof of the changing times. Single.Earth is here to make it happen.
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