Advancing the Natural Capital Accounting Agenda

Gross Domestic Product (GDP) has been analysed and critiqued since its establishment as the central measure of economic growth. In 1968, Robert Kennedy famously referred to GDP as measuring “everything, except that which makes life worthwhile.” The sustainable development agenda around the world has often been characterised as requiring the world to go “Beyond GDP”.

This raises a more fundamental question: how should economic progress be measured? This note considers where GDP comes from, the direction in which its assessment is heading, and what that could mean for decision making.

Why are countries rethinking how they measure economic progress?

GDP is an aggregate measure of the economy, recording the total value of output for a country less the costs incurred in producing that output, representing a country’s economic value added. Economic growth is the change in GDP after removing the effects of price change.

Every country has teams of people responsible for compiling estimates of GDP. In Australia it is compiled by the Australian Bureau of Statistics. These compilers are referred to as “national accountants” as they apply the concepts and definitions for the measurement of GDP contained in the System of National Accounts (SNA).

It was first established as an international standard by the United Nations in 1953, reflecting the importance of macro-economic policy following World War II and the Great Depression.

The SNA and a range of other international statistical standards underpin the integrated reporting of all of the core socio-economic data used in policy making, including data on employment, prices, international trade, investment and population. These standards provide the key advantage of comparability across countries and over time and have established a common language for producing and analysing macro-economic data.

Largely, the SNA has stood the test of time. Despite longstanding criticism, national accounting data remains a core input to decision making. To maintain its currency, the SNA has been regularly updated in 1969, 1993, 2008 and, most recently, 2025, to reflect changes in the economy and improvements in concepts, data and methods.

While the measure of GDP itself remains broadly similar to its form in 1953, the wider national accounting system has evolved, with gradual and persistent work to broaden the focus of national accounting, and to extend and complement GDP, particularly in response to questions of sustainability and wellbeing.

How do the SNA, SEEA and related frameworks fit together?

A particularly strong force for this evolution has been the System of Environmental-Economic Accounting (SEEA), another international statistical standard.

The SEEA was first published in 1993 in the wake of the Rio 1992 Summit and its development was initiated by national accountants with the aim of developing adjusted measures of GDP. Finding accounting solutions which could be widely endorsed proved challenging but substantial progress has been made in the past 15 years.

The SEEA Central Framework was adopted in 2012 with proposals for adjusted measures of GDP where the cost of using up natural resources – i.e. depletion – is deducted from GDP. In 2021, the SEEA Ecosystem Accounting was adopted with proposals for extending the scope of production to include non-market ecosystem services and for adjusting GDP with measures of degradation to reflect losses in the condition of ecosystems. The SEEA Ecosystem Accounting also described a new measure; Gross Ecosystem Product (GEP) reflecting the supply of ecosystem services, to complement GDP.

Since 2012, work on implementation of the SEEA has been significant, with around 100 countries now developing SEEA-based natural capital accounts across areas such as water, energy, waste, environmental expenditure and ecosystems.

In developing its accounts, the SEEA has used the SNA as the starting point for accounting rules and treatments. The SEEA has adapted these treatments to best reflect the relationship between the economy and the environment while at the same time supporting the integration of environmental data into measures of economic activity, such as GDP, and economic wealth. The SEEA can therefore be understood as complementing the SNA rather than replacing it.

The integrated natural capital accounting approaches embodied in the SEEA have also been picked up in the private sector and are reflected in natural capital approaches such as TNFD and the ISO standard on natural capital accounting for organizations.

Institutionally though, while the conceptual and technical aspects of the SEEA are well advanced, the use of the data from the SEEA accounts is not yet mainstream and from a policy and decision-making perspective natural capital accounting remains a nice to have.

What does this mean in practice?

In that context, recent changes to the SNA in its 2025 version are particularly important, reflecting a shift to bring environmental considerations into the core of economic policy discussion.

In short, the 2025 SNA has introduced two big ticket items.

First, it has included a completely new chapter on the role of the SNA in the measurement of well-being and sustainability. In doing, the SNA has described the logic of using a multiple capitals approach covering produced, natural, human and social capital. While measures of GDP that take into consideration all the capitals have not been developed, this is the first explicit recognition in the SNA of the need for decision makers to utilise more holistic and integrated approaches to measurement and analysis.

Second, the SNA has codified that the measurement of net domestic product (NDP),i.e. GDP less the cost of using up capital - should be calculated by deducting both the depreciation of produced assets and the depletion of natural resources. Thus, unsustainable use of natural resources is treated as a cost of production. This change does not affect the way in which GDP itself is measured but, combined with the first change, it signals clearly that assessing economic growth should consider the using up of a country’s capital base.

To what extent can these types of changes make a difference? We know from the past 70 years that the regular release of information on economic growth using statistical standards and based on the application of accounting rules and treatments can shape the decision-making context by establishing a shared language and a comprehensive and comparable information set.

Applying this same rationale, extending the SNA using accounting treatments from the SEEA, supports the development of shared language around natural capital and builds a more integrated, environmental-economic information base for decision makers.

Combining forces across private and public sectors towards both objectives will be critical in mainstreaming natural capital thinking and promoting integrated decision making. In responding to the environmental, economic and social challenges we face, the importance of accounting for natural capital has never been higher.

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