Why We Don’t Really Measure Natural Capital but Really Should

This report by the International Institute for Sustainable Development (IISD) argues that national economic decision-making is overly reliant on Gross Domestic Product (GDP) and fails to adequately measure 'natural capital' and 'inclusive wealth'. The author contends that shifting focus toward a portfolio of produced, financial, natural, human, and social assets would promote long-term sustainability and better integrate economic, environmental, and social development goals.

• National economic policy is characterized by a disproportionate focus on Gross Domestic Product (GDP) growth over the measurement of national wealth. While corporate CEOs track both income and assets, finance ministers primarily prioritize GDP, a trend rooted in the 1940s when the priority was maximizing income to recover from the Great Depression and fund World War II.
• The concept of 'inclusive wealth' is an integrative framework that defines a nation's total assets as the sum of five distinct classes: produced, financial, natural, human, and social capital. A nation is considered to be on a sustainable development path if the total value of this portfolio is stable or growing in per capita terms.
• Natural capital consists of assets such as forests, mineral deposits, and wetlands that endure over time and provide valuable flows of goods and services. In Canada, these assets are estimated to constitute approximately 40 per cent of the country's national wealth, although these figures receive little attention from policymakers.
• Norway is cited as a primary example of the successful application of inclusive wealth principles. By reinvesting revenues from North Sea oil into a sovereign wealth fund now valued at US$740 billion, Norway has converted a depletable natural asset into a permanent financial asset to ensure future well-being.
• The author suggests that current global crises are symptoms of declining asset values: social unrest is linked to the disintegration of social capital, high unemployment in Spain, Italy, the US, and Canada reflects a loss of human capital, and climate change is viewed as a failure to maintain the atmosphere as a global asset.
• The IISD intends to advocate for the integration of inclusive wealth into the United Nations' Sustainable Development Goals (post-2015). The Institute also plans to develop new macroeconomic modeling and forecasting tools for inclusive wealth and establish itself as a center of expertise in measuring ecosystem services, utilizing its involvement in the Experimental Lakes Area.
• Significant hurdles remain in the robust measurement of inclusive wealth, including inadequate basic data on water and pollutants in Canada, the experimental nature of non-market environmental valuation, and a lack of systematized measures for human and social capital.

APA

Smith, R. (2013). Why We Don’t Really Measure Natural Capital but Really Should. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/natural_capital.pdf

Chicago

Smith, Robert. Why We Don’t Really Measure Natural Capital but Really Should. International Institute for Sustainable Development, 2013. https://www.iisd.org/system/files/publications/natural_capital.pdf.

Wikipedia

{{cite report |last1=Smith |first1=Robert |title=Why We Don’t Really Measure Natural Capital but Really Should |publisher=International Institute for Sustainable Development |date=December 2013 |url=https://www.iisd.org/system/files/publications/natural_capital.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{smith2013why, author = {Smith, Robert}, title = {{Why We Don’t Really Measure Natural Capital but Really Should}}, institution = {International Institute for Sustainable Development}, year = {2013}, month = dec, url = {https://www.iisd.org/system/files/publications/natural_capital.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }