Moving #BeyondGDP - Q&A with Namita Vikas
On 9 January 2019, the Green Economy Coalition, the Green Growth Knowledge Platform and the Partnership for Action on Green Economy held a High-Level Media Debate on the question, "What makes your country wealthy?" In the lead up to the event, we asked thought leaders to share their insight on new approaches to wealth accounting and the challenges of moving beyond GDP. Here we hear from Namita Vikas, Group President & Global Head of Climate Strategy & Responsible Banking for YES BANK LTD.
1) Why does how we measure wealth matter?
Economies across the world use Gross Domestic Product (GDP) as an important and easy-to-use barometer for assessing economic growth and accordingly create national development plans based upon it. Despite the popularity and wide acceptance of GDP, its efficacy in quantifying the ‘quality of growth’ is debated globally. GDP as an indicator has limited capability in differentiating between positive and negative growth externalities and might not reveal the ideal sustainable growth path. By omitting natural and social capital, GDP lacks an inclusive, holistic, and futuristic vision.
Development and prosperity levels are increasingly being measured in terms of alternative indicators like the happiness index, social well-being indices, human development index, and quality of life index. This is a clear reflection of how the world is gradually moving away from ‘wealth’ to ‘value’. Having a globally accepted composite index covering all three aspects of sustainable development i.e. economic, social, and environment is crucial for indicating the actual value created.
In the context of India, natural capital is an important concern. As per a report released by the Ministry of Statistics and Programme Implementation, Government of India, 11 Indian states have registered a decline in their natural capital despite the average growth rate of Gross State Domestic Product (GSDP) for these 11 states being around 7-8%. This shows that GDP might not capture the environmental cost at which this growth has occurred, hence creating a delusion of wealth creation.
2) What are the benefits and risks of putting a dollar value on nature?
Potential risks of pricing natural assets arise from a lack of standardised measurement, valuation, interpretation, and assessment methodologies of natural resources, causing inefficiencies to exist and grow. Different stakeholders may view the ‘real/true’ price of a natural asset differently (depending upon local significance, availability, and demand). Experts have also suggested that putting a price tag on nature may weaken the protection of threatened species that have a lower monetary value. Hence it’s a path that needs to be cautiously treaded upon.
Despite the inherent risks involved, there are benefits of embedding natural capital thinking in the decision-making process.
For governments, tagging a monetary value on natural assets could feed into the policy formulation process. A well-developed natural capital account would support in:
- Identifying priority areas for developing national action plans, strategies, and allocation of budgets towards conservation activities;
- Aligning development policies with natural capital considerations. For example, considering eco-tourism / sustainable extraction of forest resources in areas with high natural capital but low per capita income to generate livelihood avenues in sync with nature; and
- Presenting a holistic indicator of growth that captures the environmental and social benefits accrued due to natural capital
For business, monitoring and valuing natural assets would enable them to manage potential risks and leverage opportunities associated with the ecosystem services they rely on. Organizations would be in a better position to realize that overusing natural resources could eventually affect their profitability and in some cases existence. By understanding the linkage between economic value generated and their reliance on natural assets, businesses would be able to carve out the future strategies and investments required for natural capital, leading to informed management decisions.
3) What do you consider to be the main barriers to moving beyond GDP?
The main barrier in the adoption of indicators and matrix beyond GDP is the absence of global consensus to transition from ‘Gross Domestic product’ to ‘Gross Development Product’, an indicator that evaluates sustainable development and shared value creation at the core, rather than mere wealth accumulation.
Mainstreaming considerations of natural and social capital in an emerging economy like India involves three key challenges:
- Lack of technical expertise and understanding of the intrinsic linkages: The stakeholder spectrum responsible for enabling the transition to beyond GDP models including governments and corporates lack the technical know-how and expertise to decipher natural/social capital and its long term relevance. Relevant specialists who understand ecology, law, public-policy, and business are required to connect the dots and arrive at a holistic impact and risk analysis methodology.
- Long-term strategy: Despite growing understanding of the importance of natural and social capital, most institutions today have a myopic viewpoint when it comes to planning resource consumption. It is important to realize that future growth depends on the sustainability of natural and social capital, which is threatened due to the short-term pursuit of business or GDP growth.
- Absence of measurement & monitoring methodology: While a few methodologies and tools have come up in the recent past to estimate and better plan the use of ecosystem services, there isn’t any de-facto accepted methodology or benchmarks.
4) How could moving beyond GDP impact policy, people, and how we do business?
Adoption of metrics and indicators beyond the confines of GDP may assist policymakers, businesses, and individuals alike in making informed decisions. Governments can identify focus areas where policy-level interventions or financial allocation is required to promote balanced growth. Such indicators would be especially helpful during international negotiations on climate change where allocation of funds can happen in a more equitable and just manner.
Moving beyond GDP would provide immense opportunities for responsible businesses to deliver solutions and contribute towards the global vision of a universal, integrated, and transformative world.
Composite sustainable development indicators and tracking mechanisms like Rio and SDG markers would prod the corporate sector to come forward with ambitious targets and risk mitigation strategies, governments to re-evaluate and introduce conducive policies, and individuals to take stock of their own footprint.
5) Are there specific countries, companies, or people in this space that you recommend taking a closer look at?
One major milestone in the journey of natural capital accounting was in 2012 with the adoption of the UN Statistical Commission of the System for Environment and Economic Accounts (SEEA). Since its launch, more than 30 countries and many middle-income countries have initiated implementation of SEEA. Recently, we have witnessed the UK Government announcing its 25 Year Environment Plan, underpinned by the concept of natural capital. India in the past has also sought to unveil ‘Green GDP’ figures and is a participant in the Natural Capital Accounting and Valuation of Ecosystem Services project, launched by the United Nations Statistics Division (UNSD). The state of Madhya Pradesh in India also measures its citizens’ happiness quotient.
Corporates like Puma and Kering have made a start by developing Environment & Social Profit & Loss statements which go beyond the conventional financial model to account for the economic and social value in monetary terms. Leading corporates like Allianz and Kering have come together as an informal group called the ‘Impact Valuation Roundtable’ with an aim to actualize frameworks like the Natural and Social Capital Protocols.
Financial innovations include the Forest Bonds by International Finance Corporation (IFC) and the Tropical Landscape Finance Facility, launched in Indonesia to enhance the ‘GDP of the Poor’. Recent innovations include Althelia Ecosphere supporting the scale-up of the Sumatra Merang Peatland Project with an impact investment of EUR 5.1 million that will rehabilitate more than 22,000 hectares of peatland rainforest in the Merang biodiversity zone in Indonesia. The Inter-American Development Bank (IDB) has also launched natural capital lab to incubate breakthrough concepts in financing conservation, biodiversity, and marine ecosystem projects.
Global coalitions like Natural Capital Coalition and Natural Capital Finance Alliance are playing a critical role in building the capacity and technical know-how of banks, investment companies, and insurance companies to look at natural capital from an impact and dependency perspective, and map investment opportunities addressing the risks of their operations in a holistic way.
6) How does your work fit into this larger goal/discussion of moving beyond GDP?
YES BANK institutionalized ‘Responsible Banking’ as a key differentiator and one of the six brand pillars along with Trust, Transparency, Knowledge, Technology, and Human Capital. The Bank aims to positively impact and contribute towards the overall sustainable development mandate and has firmly placed natural capital and environmental sustainability as one of its key focus areas.
As part of its ‘Future Now’ plan, the Bank has formulated a climate finance strategy, which entails a 360° approach to mitigate emerging risks and leverage new opportunities in India’s climate resilient business sectors, thereby contributing to the growth story through:
- Facilitating sustainable finance: YES BANK believes that financial institutions can play a major role in driving climate action, which requires them to adopt a proactive approach towards financing emerging sectors that positively contribute towards achieving SDGs. The Bank has pioneered the green bond market in India and has been associated with three green bonds, as well as launching India’s first-ever green fixed-deposit.
- Positive Impact Corporate Social Responsibility (CSR) programs: With an aim to create shared sustainable value, YES BANK has institutionalized a robust framework linking CSR and sustainable development, driven through innovation. YES BANK has developed unique, scalable, and sustainable CSR models with a focus on livelihood & water security and environmental sustainability. The Bank launched initiatives to protect iconic Indian fauna in partnership with State Governments and involving local community.
- Policy Advocacy through thought leadership: YES BANK is the first Indian signatory to the Natural Capital Declaration, now a part of Natural Capital Finance Alliance (NCFA). YES BANK has been re-elected unanimously in 2018 for the third time to be the Chair of the Steering Committee of NCFA for overseeing NCFA’s strategy and providing direction and oversight for the Working Groups and the Secretariat. In line with the ‘Knowledge banking’ ethos, YES BANK develops knowledge reports specific to certain growth sectors of the Indian economy. The Bank has released two knowledge reports in FY 2017-18 in the domain of natural capital- ‘Natural Capital Mapping: Towards achieving SDGs in India’ and ‘Valuing Natural Capital: Applying the Natural Capital Protocol’. In order to deepen the impact, build holistic and inclusive approach, Natural Capital Awards (NCA) was launched by the Bank to facilitate, reward, and share best practices in natural capital measurement and accounting within like-minded organizations in the country.
- Disclosure and Reporting mechanisms: YES BANK was the first Indian Bank to release a Sustainability Report for FY 2015-16 based on the Integrated Reporting framework of the International Integrated Reporting Council (IIRC). The Bank also employs a unique methodology called Social Return on Investment (SROI) to measure the social impact of the CSR projects undertaken.
The opinions expressed herein are solely those of the authors and do not necessarily reflect the official views of the GGKP or its Partners.