I’m currently taking a course on the circular economy.
This is the focus on an economic system based on the reuse and regeneration of materials or products. Basically, the goal is to turn waste into raw materials for products and keep waste out of the system.
Last week, we learned about Natural Capital Accounting which got me thinking about how we measure the US economy and what is and isn’t included in the analysis.
IWI Background
One of the metrics used in Natural Capital Accounting is the Inclusive Wealth Index (IWI) which assigns monetary values to the human and environmental impacts of the manufactured goods.
Currently, the GDP (gross domestic product) in the US only looks at manufactured capital – impact on people and the planet are not included.
When using the Inclusive Wealth Index, three dimensions are considered:
- Manufactured Capital – The infrastructure – buildings, tools, machines, technology – that is owned, leased, or controlled by an organization that contributes to a product or service, but aren’t a part of the output.
- Natural Capital – The stocks of natural assets – water, air, minerals, arable land, forests, wetlands, and all living things.
- Human Capital – The total of a person’s skills, knowledge, health, and experience that the company can use to further the goals of the organization.
Measuring the Green Economy
Another lens to look at the financial side of sustainability is to measure how much of the economy is devoted to protecting, rehabilitating, and preserving the natural environment.
Kelly Wentland at George Mason University is partnering with the US department of commerce to pilot the tracking of a new sector – EGSS – environmental goods and services. This would allow the tracking and progress of the sector over time just like we track other sectors of the economy. (Source)
Their pilot work found that EGSS was $620.6 billion in 2015 and $724.5 billion in 2019.
The top four categories – waste management, wastewater management, and protection of biodiversity and landscapes – represented about 70% of the total sector.
Summary
The United States trails behind other countries around the world in using environmental metrics as part of economic analysis and sector tracking. As systems are developed here, the frameworks established by the United Nations and other countries are being leveraged to help us move forward faster.
There is a lot of opportunity here. We can all start to think about the companies we own and work for to look for ways to measure more than the manufactured capital of our organizations.