The Inclusive Wealth Index (IWI) measures the assets available in an economy, namely produced, human, and natural capital. It shows whether a country’s wealth has been increasing or decreasing and thus presents a comprehensive accounting tool for policy-makers and national planning authorities. With the IWI, authorities can monitor the development of a country’s well-being and ensure it is on a sustainable track.
1) Countries witnessing diminishing returns in natural capital should build up investments in renewable natural capital to increase their inclusive wealth and the well-being of their citizens.
The majority of countries assessed in the Inclusive Wealth Report 2012 (IWR 2012) have seen reductions in their natural capital base and increases in IWI per capita. This shows that the countries may have invested the gains from natural capital into other forms of capital, however, this cannot be continued indefinitely as natural resources may be fully depleted and/or experience diminishing returns. The IWI can be substantially in- creased if countries with low IWI growth rates invest more in building up their renewable natural capital assets. Examples of investment in renewable natural capital include reforestation (REDD+ programs), agro-biodiversity landscapes, and seascapes.
2) Countries should embed the Inclusive Wealth Index within both their macroeconomic planning and development ministries alongside common economic indicators like GDP. Projects and activities are thereby evaluated based on an approach that includes natural, human, and manufactured capital.
Economic planning, poverty reduction, and conservation strategies are typically designed to meet specific objectives and are evaluated based on project-level targets. However, there is often a high interependency among the various social, economic, and environmental components so that a limited evaluation might not be sufficient to ensure sustainability of the outcomes. Instead, the authors of the Inclusive Wealth Report 2012 suggest that governments require projects to be evaluated at the sectoral level and with regard to potential impacts on the three capital asset bases (produced, human, and natural capital) and over- all changes in the IWI. The benefits of getting a more inclusive view of the practical consequences of decision-making might provide guidance in a country’s transition toward sustainable development.
3) Governments should shift from an income- based accounting framework to a wealth accounting framework.
The present accounting systems used at the national level are based almost exclusively on economic production and income. There tends to be limited information available on a country’s other capital stocks, like human, natural, and social capital. An inclusive wealth accounting framework, however, tracks changes in the different capital assets, providing a comprehensive account of changes in a country’s productive base over time.
4) Governments should move away from GDP per capita and evaluate their macroeconomic policies based on contributions to the country’s inclusive wealth instead.
Short-term economic indicators like gross domestic product (GDP) and the Human Development Index (HDI) commonly used to monitor economic production fail to reflect the state of natural resources or ecological conditions and give no indication of whether national policies are sustainable over longer periods of time. The objective of policies based on these assessments (e.g. fiscal and monetary policies) has traditionally been to increase economic growth as measured by GDP, and keep inflation low and employment high. However, GDP only measures a certain proportion of a country’s productive base. It does not reflect depletions of the natural, human and possibly even manufactured capital asset base and possibly contributes to such a depletion. In this light, the authors of the IWR 2012 propose to focus on increasing the inclusive wealth of a country by investing in the different capital asset bases. A regular assessment of the development of a nation’s productive base over time will also give an indication of how to facilitate sustainable development.
5) Governments and international organizations should establish research programs for valuing key components of natural capital, particularly ecosystem services.
The usefulness of the IWI can only be fully realized once there is a set of functioning wealth accounts. The accounts developed in this report are only in their infancy, with data gaps in the natural and human capital categories. Although much progress has been made in developing a typology for the natural capital accounts, there is still much theoretical and empirical work to be done to make them fully operational so that they become mainstream instruments in government policy-making. This can be achieved if governments and international organizations form partnerships to design and fund research programs to get better estimates of natural capital stocks and their values.