It is increasingly common to see nations reporting robust GDP growth whilst their forests vanish, water sources degrade, and soil fertility declines. This paradox exposes a fundamental flaw in how we measure national prosperity. GDP captures the market value of goods and services produced in the short term, but it systematically ignores the long-term depletion of natural assets.
All too often economies register higher GDP by clear-cutting forests, overburdening land and generally depleting natural resources. This can cause a dangerous gap in the information base upon which critical decisions about agriculture, infrastructure, and long-term economic strategy are made. This article examines why traditional economic indicators provide an incomplete picture of national wealth, how the UN System of Environmental Economic Accounting offers a credible framework to address this gap, and why actively investing in natural resources is essential for de-risking national development and securing long-term food security.
The fundamental limitations of GDP as a measure of prosperity
Economists and policymakers increasingly recognise that GDP is a flawed gauge of prosperity. Whilst effective at measuring annual production, its focus on current output ignores future impacts by failing to account for how today’s production can deplete resources and damage natural systems. When a country exhausts its groundwater reserves to boost agricultural output, GDP may rise in the short term, but the declining water table will inevitably constrain future production. GDP treats this depletion as income rather than what it fundamentally is: the liquidation of an asset.
At the same time, beneficial activities such as conserving natural ecosystems or investing in soil health are unlikely to register in GDP calculations or may even appear to slow measured growth. This accounting blind spot encourages unsustainable practices, as it incentivises short-term income growth while ignoring long-term asset losses by providing policymakers with incomplete and misleading signals about their development path.
The World Economic Forum’s analysis of the Inclusive Wealth Report demonstrates this disconnect empirically. Between 1990 and 2014, many countries recorded GDP growth that exceeded growth in, their inclusive wealth once natural capital depletion was factored in with several nations celebrating GDP gains whilst their true wealth was declining.
Left unchecked, the scale of economic risk embedded in ecosystem degradation is hard to overestimate. The world economy is profoundly reliant on ecosystem services, and their decline can have a catastrophic impact and impose enormous costs on nations. A 2021 analysis by the World Bank estimated that the collapse of just a few key ecosystem services (wild pollination, marine fisheries, and timber from native forests) could reduce global GDP by 2.7 trillion US dollars per year by 2030, presenting a material threat to national and global economic stability and food security.
In addition to this, the interdependence of global supply chains means that ecosystem collapse in one region can create cascading economic effects elsewhere. For instance, the disruption of agricultural production in an exporting region, can directly translate into food price shocks and supply insecurity in a food-importing nation. Conversely, investing in natural resources and ecosystem restoration could prevent these losses and generate significant economic returns.
Standardising natural capital accounting
Natural Capital Accounting has transformed how investors and policymakers approach investing in natural capital, turning what was once viewed as a nonfinancial externality into a recognised source of long-term value creation.
The System of Environmental-Economic Accounting (SEEA) is at the heart of this transformation. Developed as part of a collaborative effort involving the United Nations, the European Commission, the Food and Agriculture Organisation, the OECD, the IMF, and the World Bank Group, SEEA serves as a common language and data architecture for measuring and reporting environmental consequences. By putting information on natural assets in both monetary and physical terms alongside economic data, SEEA offers a common language to evaluate trade-offs and track whether development is eroding or enhancing natural wealth.
Importantly, the framework is modular and flexible. Countries can start with priority accounts relevant to their specific contexts and build up over time. Another important design feature of the SEEA is its compatibility with the System of National Accounts, the global standard for measuring economic activity. The SEEA uses concepts, definitions, and classifications that are consistent with the SNA, which allows for the direct integration and comparison of environmental and economic statistics within a single, coherent framework. This compatibility enables policymakers and analysts to understand the trade-offs between economic growth and environmental impact with unprecedented clarity. In the same way that the SNA underpins GDP calculations, the SEEA provides the official playbook for integrating environmental data with economic data.
The global uptake of this standard has been significant. As of 2024, 92 countries are actively developing national natural capital accounts aligned with the SEEA framework, with UN Secretary-General António Guterres describing the adoption of the accounting standard as a “historic step towards transforming the way we view and value nature.”
Natural capital accounting in practice
By unifying environmental and economic data, SEEA helps policymakers spot unsustainable trends, evaluate trade-offs, and justify difficult choices with empirical evidence. More fundamentally, natural capital accounting enables stakeholders from varied disciplines to speak the same language, facilitating dialogue between economists, agronomists, policymakers, and others. Simply having a credible and consistent methodology encourages more coherent policy, allowing agriculture, environment, and finance ministries to work together rather than at cross purposes.
These practices are already informing substantive policy decisions. For instance, in Victoria, Australia, natural capital accounts were used to evaluate how different land uses affected both ecosystem services and economic output. The accounts clearly revealed the trade-offs of continued native forest logging versus conservation. When researchers presented these findings to state officials, the evidence influenced a landmark policy decision: Victoria’s government announced it would cease native forest logging by 2030, transitioning the timber industry and protecting the forests. Similarly in South Africa, the SEEA framework was used to identify a 10 per cent decline in river health from 1999 to 2011, pinpointing which catchments were most degraded. This information fed directly into the National Water and Sanitation Master Plan and allowed authorities to target investments in catchment restoration and provide critical support where it was most needed.
Beyond domestic policy, countries that adopt natural capital accounting practices send a signal to international markets that they are managing risks and planning for the long term. Development finance institutions such as the World Bank and Asian Development Bank are increasingly integrating natural capital information into their regional development strategies and using that data to guide funding priorities. A country with robust SEEA accounts can demonstrate resource stability and sound policy, thereby reducing perceived investment risk and improving access to concessional finance. This creates a virtuous cycle, attracting not just development aid but also private sector investment, as markets increasingly recognise that investing in natural resources reduces systemic risk and creates a more resilient economy.
This logic also extends to sovereign creditworthiness. Rating agencies have begun factoring climate and natural resource risks into their evaluations of countries. By maintaining SEEA data, a government can better communicate its resilience and demonstrate that its GDP growth is not driven by unsustainable resource extraction. Over time, this positions them favourably to issue green bonds, attract sustainability-linked loans, and secure private investment.
Investing in natural resources: From frameworks to implementation
The evidence is clear: over the long run environmental health underpins economic prosperity, especially in sectors such as agriculture, fisheries, forestry, and tourism. Countries that systematically run down their natural wealth often see initial GDP gains fizzle out or reverse as resource productivity falls and ecological systems degrade beyond the point of recovery. The evidence presented throughout this article converges on a single, unavoidable conclusion: traditional GDP-centric views of wealth are no longer sufficient for guiding national development. Nations must actively invest in and account for their natural resources to ensure long-term prosperity, economic stability, and food security.
The emergence of the UN SEEA framework provides an actionable path forward. It gives policymakers the tools to integrate environmental concerns into official accounting and budgeting processes, transforming abstract ideas into concrete data that can inform decisions across government ministries. Even though compiling natural capital accounts requires investment in data collection, technical capacity, and institutional coordination, this cost is modest compared to the insights gained and policy mistakes that can be avoided, and early adopters have already demonstrated that natural capital accounting can deliver tangible policy improvements and attract finance.
Progressive governments and institutions ought to consider investing in natural capital as a fundamental component of modern economic governance, on par with fiscal and monetary policy. They should use it to safeguard food systems, de-risk the national economy, and chart a resilient and sustainable development course. The tools exist, the framework is proven, and the economic argument for action is overwhelming. What remains is the political will to integrate nature’s true value into the decisions that shape our collective future.
At Farrelly Mitchell our policy and regulation experts provide the technical and strategic expertise to help governments and agribusinesses translate environmental and economic considerations into actionable strategies. Our institutional development services deliver specialised guidance on policy & regulation, food safety, sustainability & ESG, and supply chain dynamics helping governments and industry leaders navigate them as part of a broader strategy. We help our clients integrate natural capital considerations into national policy frameworks, design strategies that balance economic growth with environmental stewardship, and build the capacity required to establish robust and sustainable food systems. With a proven track record that spans the global food and agribusiness value chain, we combine deep sectoral knowledge with expertise in environmental policy to help clients turn sustainability challenges into strategic advantages. Contact our food policy experts today to discuss how we can support your organisation’s efforts to build and maintain natural wealth.
