Measurement of natural capital

Natural capital accounting is a tool to measure the changes in the stock and condition of natural capital (ecosystems) at a variety of scales and to integrate the flow and value of ecosystem services into accounting and reporting systems in a standard way.

It is crucial to understand the value of natural capital, going beyond the framework of inclusive wealth. Natural capital accounting is a key focus for ONS, involving state of the art valuation methodologies and international collaboration with the United Nations Statistics Department, the World Bank and UNEP.

This ESCoE project aims to improve methodologies for the valuation of natural resources.

A key area of focus is measuring the contribution of water. Freshwater is vital to humans, both as direct consumers and for the production processes that support consumption more generally.  There are many key policy issues related to water, including the sustainability of supply, as well as quality and sewage issues. Water also plays a major part in other high-profile issues such as biodiversity, climate change and its contribution to physical and mental health.

However, traditional economic statistics cover only part of water’s contribution to the economy and society.

We will use exchange values or appropriation of rent in line with SEEA (System of Environmental Economic Accounting). A variety of techniques will be used to calculate these values where observable market prices are not available.

To analyse trends in sustainability, it is important to have reliable price indices and deflators for natural assets. The project will use market prices where possible and will compile shadow prices in cases where this is not possible.

Timeliness is a key issue. Current estimates for UK natural assets extend only to 2019. This could be addressed by exploiting information available from satellite and other earth-observation data and using recent advances in data science techniques to analyse such information. This will be exploratory territory to find areas of improvement.

Provision of more accurate, more comprehensive and more timely estimates of natural capital can be used on their own or as part of wider measures of effective national product, income and wealth.

Better measures of the development of natural assets will also underpin informed public discussion and to help effective policymaking and wider decision making.

Reas, V., Bartolini, A., Ferrini, S., Ekins, P. and Grice, J. ‘Accounting Water Ecosystem Services for national and regional decision making in the GB’ Envecon 2025, UK Network for Environmental Economists, The Royal Society, 14 March 2025.

Ekins, P., Grice, J., Ferrini, S., ‘Accounting for water and water ecosystem services in the UK‘. ESCoE Blog, 4 February 2025.

Ekins, P., Grice, J., Ferrini, S., ‘Accounting for water and water ecosystem services in the UK‘. ESCoE Discussion Paper, 4 February 2025.

Ekins, P and Grice, J. ‘Measurement of natural capital’. ESCoE poster at 38th IARIW General Conference, 26-30 August 2024.