Natural Capital

The natural assets available to a country, for instance: minerals, fish stocks, natural land and its ecosystems.

Video

Dimitri Zenghelis on Cities and Wealth

Over the next fifty years, most new wealth will be accumulated in cities; this includes physical infrastructure (road, rail, electricity, telecommunications and sanitation), productive capital (houses, offices and factories) and knowledge capital (skills, knowhow and ideas). The development of cities will also determine humanity’s ability to preserve natural capital. Consequently, urbanisation deserves urgent attention from policymakers, academics and businesses worldwide. Dimitri Zenghelis discusses how well-governed, connected, clean cities are likely to attract productive capital, talent, and creativity; while bad governance and inaction over planning can erode progress for decades to centuries.


Video

Dieter Helm on Natural Capital and Sustainable Growth

Recognizing environmental constraints, and in particular recognizing that many natural assets are close to falling below their thresholds for sustainability does not imply that economic growth must stop or even slow down. Dieter Helm discusses how it is possible to have economic growth while protecting aggregate natural capital.


Video

Rolando Ossowski and Håvard Halland on the Economics of Sovereign Wealth Funds

Many countries have set up sovereign wealth funds (SWFs) as vehicles for public saving and wealth management. The majority of SWFs are in resource-exporting countries; frequent objectives are macroeconomic and fiscal stabilisation, inter-temporal transfer of wealth, and national development. Some resource funds hold assets equivalent to several multiples of GDP, but many funds are relatively small. The evidence shows that the design and operation of a SWF can help or encumber economic management and wealth preservation.



Report

UK Natural Capital Committee

The Natural Capital Committee is an independent advisory body, set up in 2012. It provides advice to the government on the state of England’s natural capital – that is, our natural assets includes forests, rivers, land, minerals and oceans.

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Academic Article

Taking natural capital seriously

The paper sets out a pragmatic case for preserving the aggregate level of natural capital, in the face of the declines in biodiversity and the rising population, and major increases in consumption that economic growth will bring in this century. The accounting framework to achieving this objective is considered, focused on the role of asset registers. Particular attention is paid to renewable assets at risk of falling below critical thresholds. These assets are key components of the balance sheet. Capital maintenance expenditures are required to maintain the value of assets intact, since renewable natural assets should not be depreciated, but rather treated as assets in perpetuity. Within the aggregate, substitutions with other forms of capital are permitted, but only if there is compensation for any detriment to natural capital. Offsetting is one mechanism for achieving this compensation. The case for enhancing the aggregate is considered, and the paper shows how a broader national plan over a generation could contribute to the policy objective of leaving the next generation with a richer endowment of natural capital. The policy instruments for embedding natural capital into public policy are reviewed.

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Academic Article

Recording environmental assets in the national accounts

Accounting information is a core element of economic decision-making at both national and corporate levels. It is widely accepted that much economic activity is dependent upon natural capital and natural resources—generically termed environmental assets in an accounting context. Environmental assets are under threat of depletion and degradation from economic activity. Consequently, the incor- poration of information on environmental assets into standard accounting frameworks is an essential element in mainstreaming environmental information and broadening the evidence base for economic decisions and the assessment of sustainability. This paper describes the treatment of environmen- tal assets within the national economic accounts and summarizes recent developments that extend the accounting approaches as described in the United Nations’ System of Environmental-Economic Accounting (SEEA). The potential for implementation of accounting standards for environmental assets is shown through a description of work in Australia on environmental-economic accounting.

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Academic Article

Guidelines for exploiting natural resource wealth

The principles of how best to manage the various components of national wealth are outlined, where the permanent income hypothesis, the Hotelling rule, and the Hartwick rule play a prominent role. As far as managing natural resource wealth is concerned, a case is made to use an intergenerational sovereign wealth fund to smooth consumption across generations, a liquidity fund for the precautionary buffers to deal with commodity price volatility, and an investment fund to park part of the windfall until the country is ready to absorb extra spending on domestic investment. Capital scarcity implies that a positive part of the windfall should be spent on domestic investment. The conclusions highlight the political economy problems that will have to be tackled with these normative proposals for managing wealth.

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Report

Citi GPS: The Public Wealth of Nations

Governments around the world have an estimated $75 trillion of dollars of public assets, ranging from corporations to forests, which are often badly managed and frequently not even accounted for on their balance sheets. Over recent decades, policy makers have focused almost solely on managing debt while largely ignoring the question of public wealth. Given that in most countries public wealth is larger than public debt, just managing it better could help to solve the debt problem while also providing the material for future economic growth. A higher return of just 1% on global public assets would add some $750 billion to public revenues. Poor management not only throws money down the drain, but also forecloses opportunities.

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