This article was originally published on Credit Suisse.
“If planet earth was a company, it would send us a huge bill for the natural resources we have used and the damage we have caused to the environment. Our latest report, “The Future of GDP,” analyzes the (dis)connection between the environment and the economy.
For a very long time, humankind has treated the world’s natural resources as free and unlimited. It is still often assumed that the environment is here to serve us at any cost and that it is impossible to conduct successful business in symbiosis with the planet. Adding fuel to the fire is the way that gross domestic product (GDP) is measured. This key metric was developed in the early 20th century and is still widely used to monitor economic growth. However, it doesn’t take into account many issues that today are seen as critical to maintaining growth in a sustainable, long-term way, like protection for the environment.
It’s time to redefine capital to include natural resources
In traditional economics, capital is anything man-made that is used to provide goods or services, including factories, machinery, and money. It’s only recently though that nature is beginning to be recognized as an essential source of capital. The goods and services provided by nature and its ecosystems are a fundamental (albeit taken for granted) part of any economy. Fresh water, breathable air, fertile soil, renewable energy sources, a relatively stable climate, or the assimilation of pollution and waste – all flow from natural capital.
Like man-made capital, natural capital can increase and grow, thereby increasing prosperity – or it can diminish and depreciate, threatening our future well-being, and resulting in real economic damage…”