Standard metrics of national wealth don’t account for the environmental costs of economic growth. Could the adoption of a new yardstick focus minds on tackling the climate crisis?
“We need to measure what we treasure,” write former Unilever CEO Paul Polman and green business expert Andrew Winston in their new book, Net Positive. One of its key themes is that, to combat climate change effectively, the world must abandon measuring economic progress in terms of “GDP, dollars, stock price and shareholder value”.
They are not alone in their thinking. Many eminent economists have argued that GDP in particular is no longer fit for purpose. The monetary model, first proposed in 1937, has become the standard measure of value created through the production of goods and services in a country over a set period. It’s the figure most prized by governments and analysts. Yet, according to its formulas, a 100-year-old carbon-capturing tree is worthless until it’s chopped down and sold as lumber. To GDP, nature has no value unless it’s sold on the commodities markets.
In February, economist Professor Sir Partha Dasgupta published a government-commissioned independent report on the economic benefits of biodiversity. He notes that one of GDP’s key failings is that it doesn’t account for the depreciation of assets, especially natural ones.
“Because of this, we are living off our natural assets without recognising so,” Dasgupta explains. “Nature is free. It provides not only climate regulation, but also waste decomposition, pollination and so on. Yet we haven’t been paying for the carbon we dump that depreciates it.”
And that’s not all. As Polman and Winston write, GDP “counts everything that raises spending as a good thing: more cancer and medical costs, reconstruction after giant storms, wars and conflicts… But it does not measure peace, quality of education, mental health or the protection of natural capital needed for our survival.”
Creating alternative ways to measure prosperity has not proved easy. Several formulas have been devised that focus mostly on societal wellbeing, including the UK’s own Happiness Index. None of these has achieved the same prominence as GDP, though.
Dasgupta believes that the prevailing approach to tackling climate change serves to protect the traditional economics of GDP, without challenging the assumption that perpetual growth in consumption is desirable. Despite this, Swiss Re recently estimated that climate change could lop $23tn off the world’s annual economic output by 2050.
“The idea is that, if we invest in clean technology to eliminate carbon, we can go for GDP growth because what is dampening that growth – climate change – will be tamed. This is misleading, because technology can’t do everything that Mother Nature does,” he argues.
Dasgupta proposes a measure that checks whether a nation’s consumption is less than net domestic product (GDP minus depreciation on the country’s assets), which would include nature and other assets not currently counted in GDP.
“If consumption is less than net domestic product last year, we are holding a greater wealth than we did the previous year,” he explains.
The Department for Environment, Food and Rural Affairs has started auditing the UK’s natural assets. These clearly aren’t easy to quantify, but a report by the World Wide Fund for Nature in 2018 estimated that the global natural capital underpinning all economic activity was worth $125tn.
Other experts favour another metric – sustainable domestic product – based on the UN’s sustainable development goals (SDGs). This would measure the sustainability of individual products. For instance, the value of a unit of electricity would be measured against the SDGs and any negative environmental impact subtracted from that.
When Polman led Unilever in 2009-19, he attempted to decouple the company’s growth from its environmental footprint and improve its impact on society through the so-called Unilever sustainable living plan. Given that his efforts were successful by most measures, he is urging businesses to take the initiative and become “net positive”. By this he means adopting the ethos of “living within natural boundaries… Try to repair, restore, reinvigorate, and regenerate.”
Polman continues: “Courageous companies can thrive by giving more than they take. It’s not just about reuse and recycling, which are enormous steps themselves. It’s also about creating a mentality of restoring nature through activities such as regenerative agriculture and reducing food waste. Companies must take ownership of both the positive and negative societal consequences they create. To do this requires leadership and a community mindset.”
No big business has got to this point, but some are well on their way. UK carpet wholesaler Interface started its quest for true sustainability back in 1994. In the latest annual Sustainability Leaders survey report published by GlobeScan and SustainAbility, it ranked as the fifth-most recognised company by sustainability experts for its leadership in the field. Unilever topped the table.
Having achieved its target to have no negative environmental impact, Interface is now working on what it calls its “climate takeback” initiative. This aims to run the business in such a way that acts to reverse climate change. It entails adopting externally verified science-based performance targets; offering carbon-neutral products; treating nature as a stakeholder in decision-making; and sharing knowledge.
Interface’s head of sustainability, Jon Khoo, admits that pioneers in this field are taking on “more financial risk, because they’re paying for the innovation. But laggards waiting for regulatory compulsion face another risk: the fact that some of the solutions we’ll have implemented cannot be adopted overnight.”
In 2013, Swiss agritech firm Syngenta Group adopted what it calls its good growth plan. This has established scientifically based environmental key performance indicators that are linked to managers’ remuneration. These include improving resource efficiency, building up natural resources and sharing knowledge with farmers and other stakeholder groups.
“We sell much less volume per acre applied of our products today than we did 20 years ago, but we don’t make less money. That’s because we’ve changed our value proposition,” says the group’s head of sustainable and responsible business, Juan Gonzales Valero. “If you want to stay in business, you need to make more efficient use of your resources.”
Many decision-makers in business and government will have to make a huge shift in mindset to stop focusing on pure economic growth, but it’s a change that all of us need to make, according to Polman. What’s more, he adds, while there is much evidence to show that unfettered consumption is incompatible with the fight against climate change, any alternative model will need work for everyone.
“Ultimately, we need to answer how we can have a sustainable economy, which decouples growth from resource consumption and environmental degradation, and also not have many people living in poverty,” he says. “If we don’t solve that equation, as a total, it’s not going to work.”