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US SYSTEM FOR NATURAL CAPITAL ACCOUNTING NATIONAL STRATEGY TO DEVELOP STATISTICS FOR ENVIRONMENTAL-ECONOMIC DECISIONS ... A U.S. System of Natural Capital Accounting and Associated Environmental-Economic Statistics 
Open TVM copy of PDF: US-Govt-Natural-Capital-Accounting-Strategy-23098.pdf Open Original Govt PDF: White House ... Natural-Capital-Accounting-Strategy.pdf Peter Burgess COMMENTARY This is almost very good ... but like so much academic and governmental work, it is not going to work very well to improve decision making and performance. I have been thinking about this problem for a long time, and have been in a position to experiment a little bit in the course of my working career going back to the 1960s when I became a very young CFO in an American company. One of the initiatives that I worked on at the company where I was employed in the 1960s was something we called 'Responsibility Accounting'. Better managed companies were starting to deploy budget systems, but they did not improve performance very much. The emerging idea of responsibility accounting aimed to make a manager ... a person ... take ownership of and responsibility for the performance that was the subject of the budget center. I believe the company I worked for (Aerosol Techniques Inc.) and a Harvard based consultancy firm (Management Analysis Center) jointly produced a case study at the Harvard Business School based on this work around 1967. I have used variants of responsibility accounting in much of the work I have done throughout my career, both when working in the corporate environment and in the world of international economic development and humanitarian assistance. I recall making a presentation back around 1990 about responsibility accounting to a senior management group at UNDP ... the United Nations Development Programme ... and after my presentation having someone I knew quite well telling me that nobody in the group (... a very senior staff group ...) had any understanding of the concepts of either responsibility or accounting / accountability. Fast forward, this current US Government initiative around Natural Capital Accounting and Associated Environmental-Economic Statistics has some of the same feel in that it seems to studiously avoid the essential management prerequisite that there is an identifiable focus of responsibility and accountability, without which the system and the data are little more than decoration. The idea of doing a better job of management metrics related to natural capital and environmental progress and performance is very laudable, but I would ask why society is not included as well ... and why is conventional financial management progress and performance also missing from the framework?. In some ways, one could argue that humans are the most important part of natural capital, and can be accounted for within natural capital. I prefer to think in terms of people and society being consolidated as a separate segment of capital called social capital. I see the need for a coherent and comprehensive progress and performance framework that includes economic capital, social capital and environmental capital. Furthermore, I see the need for a way to do the numbering independent of the money metric that has unacceptably high variability over time ... it is not stable in the USA, and money measures in many other countries are far less stable. Conventional financial accounting and reporting is incredibly power ... it has stood the test of time for several hundred years ... but it is constained in its utility by some very limiting rules. Some rather modest reform would allow the same framework that is used in double entry accountancy to be used to structure management metrics for society and management metrics for the environment in somewhat the same way. This is not the direction that has been followed by the most visible initiatives for the development of sustainability reeporting over the past many years ... such as GRI, SASB, IRIS, IDRC and others ... and is missing as far as I can see from this current government initiative Some years back I pitched some of the members of the Congressional Budget Office that they should consider migrating from using the growth of GDP as a key metric for economic performance and go to something better. As I recall I was treated with absolute disdain, not so much because my ideas made no sense, but more because the idea of changing almost anything within the US Federal bureaucracy is something of an oxymoron. What do I know? From my experience in the corporate world, and to some extent my experience with more modest projects around the world, good ideas are welcomed, and if they work are rapidly adopted. If they don't work particuarly well, everyone moves on and gets on with something that does work. There are a multitude of good ideas for better metrics ... but mostly they are far too much 'standalone' and not part of a comprehensive, coherent, efficient management framework. Many of these standalone initiatives have very good elements for their special part of the system, but they do not integrate easily and usefully into an overall comprehensive system. This present government initiative is huge, but does not integrate very well, indeed hardly at all, with the other menagement metrics initiatives that are being or have been developed and are already in various stages of deployment / adoption. I wish I was young enough and strong enough to make the case for what is really needed and be really helpful. The best that I can hope to do is to nudge younger experts in a better direction ... and perhaps everyone might be pleasantly surprised. Peter Burgess | ||
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Executive Summary
Nature provides people with important services and economic opportunities. Nature supports recreational opportunities and tourism, provides food and fiber, and reduces air pollution that supports health and worker productivity. With every passing year, scientists, innovators, and economists discover more evidence about how the economy relies on nature and how economic activities change nature’s ability to provide services. The fact that nature provides people with services now and opportunities in the future is why economists refer to nature as a form of capital. This natural capital supports economic prosperity in similar ways to the financial capital that is traded on Wall Street or the buildings and machines that make up the physical capital on Main Street. This report, National Strategy to Develop Statistics for Environmental-Economic Decisions: A U.S. System of Natural Capital Accounting and Associated Environmental-Economic Statistics, charts a course to measure natural capital in official U.S. economic statistics. The current absence of these important economic metrics and the omission of nature from the national balance sheet leads to erosion of current and future economic opportunities. The proposed expansion of the national economic accounting system seeks to provide new information to capture links between nature and the economy. This Strategy uses existing authorities and builds on and integrates numerous existing natural capital efforts across many Federal agencies. The resulting multi-year effort would lead to more inclusive and forward-looking conversations about “the economy.” It would provide and organize the information needed to make informed decisions that enhance economic prosperity in the present, while securing future nature-dependent economic opportunities. A brief recap of the rationale, process, and proposed path forward are provided below. Why is a plan needed? Our current national economic accounts—the organized data describing the U.S. economy, often summarized as Gross Domestic Product (GDP)—are largely disconnected from the natural world. Yet American families, American businesses, and the American economy depend on nature. For example:
This knowledge has prompted the need to evolve the national economic accounting system and connect nature to the measurement of the economy. Policy makers are increasingly concerned about the role of nature in long-term economic forecasts. Banks, investors, insurers, and consumers increasingly demand information about environmental dependencies and risks to economic sectors. Regulators and regulated industries increasingly desire dependable information and structure to devise and plan for regulations that protect the environment, while growing the economy and creating good-paying jobs. The challenges of climate change, biodiversity loss, air and water pollution, and environmental injustice carry implications for both the economy and the environment, and society cannot effectively or efficiently confront those challenges if economic and environmental accounting and policy proceed on two separate tracks. To unify those tracks most effectively, the United States needs a unified system of economic and environmental statistics. This plan proposes how to achieve that goal. How was this plan developed? The White House Office of Science and Technology Policy (OSTP), the White House Office of Management and Budget (OMB), and the Department of Commerce (DOC) led an Interagency Policy Working Group (Working Group) to develop this plan to bridge the national economic accounts and environmental-economic information that is consistent with activities regularly conducted under existing legal authorities. This document, shortened hereafter to Statistics for Environmental-Economic Decisions or the Strategic Plan, presents a robust and pragmatic pathway to bring nature into the national economic accounts by developing natural capital accounts supported by environmental-economic statistics. The path articulated in this Strategic Plan treats nature as an asset and incorporates these natural assets on the national balance sheet. These accounts and statistics can work alongside traditional economic statistics, such as GDP, to help guide economic decision making to be more inclusive of the services—or benefits to humans—nature provides. The plan also supports Executive Order 14072, which directs agencies to better understand, account for, and find solutions in nature. Putting nature on the national balance sheet would be an exciting effort for the Federal Government, but it is not a new idea. American economist Irving Fisher first proposed doing so over 100 years ago, and academic researchers, including multiple Nobel Laureate economists, Federal scientists, economists, and statisticians have been researching and prototyping this idea since the 1970s. The National Academy of Sciences has produced multiple reports on the topic; the U.K. Treasury released the highprofile Dasgupta Review in 2021 supporting the idea. The international statistical community has adopted United Nations (U.N.)-developed standards for a System of Environmental-Economic Accounting, and over 80 countries, including many U.S. allies, are formalizing natural capital accounting in their nations’ respective economic statistical systems. Fortunately, the United States has the expertise and data to put nature on its balance sheet. What does the plan propose? Statistics for Environmental-Economic Decisions makes specific recommendations to the U.S. interagency statistical system to develop and use natural capital accounts and environmental-economic statistics. The first two recommendations relate to the purpose of the natural capital accounts and environmental-economic statistics. First, these accounts should be pragmatic and support decision making that advance: (1) macro-economic stability and sustainable development; (2) federal decision making in programmatic, policy, and regulatory settings; (3) the competitiveness of U.S. businesses; (4) the resilience of State, Territorial, Indigenous, Tribal, and Local communities; and (5) conservation and environmental policy. Second, the natural capital accounts and environmental-economic statistics should provide domestic comparability through time and advance international comparisons and harmonization in order to enable the United States to maintain and enhance leadership with respect to the development of global standards and implementation of those standards. The next three recommendations guide development of the natural capital accounts and environmental-economic statistics. First, the U.S. Government should apply existing authorities and make use of the substantial expertise within Federal agencies by coordinating across agencies to develop the system of natural capital accounts and environmental-economic statistics in an efficient manner. Second, the U.S. Government should use a 15-year phased approach to transition from research grade environmental-economic statistics and natural capital accounts to Core Statistical Products, which includes a single headline summary statistic along with supporting products and reports. The phased approach is designed to enable new information to be available early in the process, while the long-term plan ensures rigorous and iterative development to meet high statistical standards and produce a durable set of statistics to complement the national economic accounts. The Plan recommends that natural capital accounts produce a new forward-looking headline measure focused on the change in wealth held in nature: Change in Natural Asset Wealth. Integrating this new measure with changes in GDP would provide a more complete and more useful view of U.S. economic progress. Specifically, pairing Change in Natural Asset Wealth with GDP would help society tell if today's consumption is being accomplished without compromising the future opportunities that nature provides. The final recommendation is that the U.S. Government should embed the system of natural capital accounts and associated environmental-economic statistics in the broader U.S. economic statistical system, and guides this process with three sub-recommendations. First, build on and implement the internationally-agreed standards of the U.N. System of Environmental Economic Accounting, where those standards are relevant to the United States and robustly developed. This includes following the standard supply-use framework that structures national economic accounts. Second, establish a small number of clearly-defined accounting boundaries to organize natural capital accounts in a way that can accommodate many of the different uses and perspectives on value. Third, apply rigorous and established economic science for monetizing the value of natural assets. If Statistics for Environmental-Economic Decisions is implemented, what would the outcome be? American incomes and the American economy depend on nature. Statistics for Environmental-Economic Decisions provides the guidance for a modest expansion of the national economic accounting system so that it continues to provide clear-eyed information to guide policies and business decisions. The total value of nature can never be put in monetary terms, but connecting nature and the economy is possible and will help America prosper as it overcomes 21st century economic challenges, including those linked to climate change, biodiversity loss, air and water pollution, and environmental injustice. --------------------------------------------------------- Contents Executive Summary The Interagency Policy Working Group Strategic Plan: Audience, Goals, and Organization Reading Statistics for Environmental-Economic Decisions I. The Need for a System of Statistics for Environmental-Economic Decisions
III. Connecting Natural Capital and Environmental-Economic Statistics with National Economic Accounts
List of Acronyms Appendices Appendix A. The Development of Environmental-Economic Statistics in the United States Appendix B. Connecting Natural Capital and Environmental-Economic Statistics with National Economic Accounts.
--------------------------------------- Strategic Plan: Audience, Goals, and Organization Statistics for Environmental-Economic Decisions, developed by the Working Group, provides a strategy for implementing and institutionalizing natural capital accounting and environmental-economic statistics in the U.S. Government. The Strategic Plan incorporates and identifies research and development, outreach, and department and agency action required for short-term and long-term success. The Working Group’s recommendations include actions agencies can take under existing resources and those that would require additional modest appropriations from Congress. The combination of these efforts will lead to significant developments in the natural capital accounts and environmental-economic statistics. The Working Group recommends agencies prioritize the resources necessary to implement the recommendations outlined in the Strategic Plan within existing resources and annual budget requests. The Working Group’s recommendations, including the proposed start and completion dates, are subject to the availability of resources and may shift pursuant to final appropriations. Reading Statistics for Environmental-Economic Decisions Statistics for Environmental-Economic Decisions is written to communicate with multiple audiences with different backgrounds, different focuses and concerns, and different levels of interest in the ecological, economic, and statistical technical aspects of the plan. The Working Group hopes that the American public and experts with varying backgrounds will be able to engage with this plan. Statistics for Environmental-Economic Decisions explains why natural capital accounting and environmental-economic statistics are important on a strategic level, while providing enough technical detail on national accounting, statistics, and economics for experts to have a plan to follow at an operational level. At times this means using the terminology of national accounting, statistics, and economics. U.S. economic accounts have persisted as an important, apolitical tool for nearly 100 years, in part because of an adherence to a rule-based system with technical detail. Statistics for Environmental-Economic Decisions endeavors to follow the rigorous statistical standards of the national economic accounts, while making as many elements of the plan as broadly accessible as possible. Statistics for Environmental-Economic Decisions is organized in six sections with additional details available in the Appendices. Each section includes two categories of recommendations: Strategic Recommendations (in bold) and Supporting Recommendations (in italics). The Strategic recommendation for Section I follows a brief introduction, then provides details, rationale, and context for the recommendation. Sections II-V begin with a Strategic recommendation that highlights important considerations for developing natural capital accounts and environmental-economic statistics. In most sections, the Working Group makes Supporting recommendations that guide implementing agencies through steps and decisions needed to deliver the Strategic recommendation and ultimately natural capital accounts and environmental-economic statistics. These Supporting recommendations enable the reader to skim the plan to understand how the Working Group recommends delivering on the Strategic recommendation, or read the section in full if more information is desired. The six sections of Statistics for Environmental-Economic Decisions are:
Any references to private companies or products are not endorsements by the Federal Government. They are simply intended to provide concrete verifiable examples. --------------------------------------- What are the objective of responsibility accounting? Responsibility accounting aims to ensure that costs become the responsibility of a specific manager. Responsibility accounting is a system that involves identifying responsibility centres and their objective, developing performance measures, and analysing performance reports of responsibility centres. Conservation of Matural Capital “The nation behaves well if it treats the natural resources as assets which it must turn over to the next generation increased, and not impaired, in value; and behaves badly if it leaves the land poorer to those who come after it. That is all I mean by the phrase, 'Conservation of natural resources'. Use them; but use them so that as far as possible our children will be richer, and not poorer, because we have lived.” Theodore Roosevelt, Speech to the Colorado Livestock Association in Denver on August 29, 1910
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