Magazine article E Magazine

The New Accounting: Taking Better Stock of the Environment

Magazine article E Magazine

The New Accounting: Taking Better Stock of the Environment

Article excerpt

Although looking at natural resources in terms of dollars and cents may call to mind greed-mongering capitalists lighting cigars with hundred-dollar bills, in reality a failure to account for the financial value of a nation's natural resources and environmental services unwittingly promotes taking the environment for granted and retards the development of poor nations.

According to Kirk Hamilton, lead environmental economist at the World Bank and co-author of the report Where is the Wealth of Nations?, "green accounting" reached a milestone in 2003 after the United Nations issued formal recommendations for countries to adapt environmental principles into their Standard National Accounts. "We are trying to fill in some of the items that aren't in regular national accounts," Hamilton explains. "If governments don't have relevant information on the environment, they may have a very distorted picture."

Hamilton points to the example of a country in which mineral or oil ex traction is a large part of the economy. The powers that be might be saving 20 percent of what's being produced for future economic growth. But environmental accounting suggests that once you account for the depletion of the natural resources and wear and tear on produced capital goods such as buildings and machinery, the rate of creation of new wealth in net terms might be negative. There can be a huge gap between the apparent rate of wealth creation and the true wealth creation, particularly in developing nations. …

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