Finland would benefit from a new accounting system that measures natural capital 

In a new working paper (summary in English), the Finnish Innovation Fund Sitra proposes that Finland use a new accounting system that makes it possible to monitor the country’s natural capital. Natural capital is the whole of the natural world, including the soil, minerals, air and water and the life in them. This capital continuously provides an enormous amount of services to people and the economy, such as clean water, pollination of food crops, raw materials and carbon sequestration.  

However, the economic value of nature is not visible to central and local government decision-makers, nor to business leaders and managers. As a result the economy consumes natural capital faster than it can be regenerated. If the decline in natural capital is allowed to continue, biodiversity loss will knock the bottom out of the economy. 

“Natural capital must be managed sustainably if it is to continue to provide the conditions for Finnish well-being and a thriving Finnish economy. In order for decision-makers to have the necessary information on the importance of natural capital for the national economy, we need an effective monitoring tool. Otherwise, decisions will be made on the basis of inadequate data. What we cannot measure, we cannot control,” says Lasse Miettinen, Director of Sitra’s Sustainability Solutions theme. 

The national economy and natural capital must be brought together 

National accounting is an essential economic policy tool for monitoring the economy using selected indicators, such as gross domestic product (GDP). However, our national accounting does not recognise the value added to the economy by nature. 

To address this shortcoming, work has been underway at the international level for over a decade to develop a standard for natural capital accounting: an extension of national accounting that can monitor the status of and changes in natural capital and link it to the national economy. This work reached an important milestone when the UN Statistical Commission adopted the Ecosystem Accounting standard and recommendation in 2021. 

Ecosystem accounting compiles statistical data on the area and ecological condition of different ecosystems, the supply and use of ecosystem services, the monetary value of these services, and the asset value of ecosystems. Accounting also shows the geographic location of the services. 

Ecosystem accounting allows us to see the annual benefits of the services provided by nature, also in monetary terms, and to monitor changes in nature and ecosystem services. When this data is combined with economic modelling, it is also possible to examine the impact of changes in natural capital on production or employment in different sectors of the economy. 

Ecosystem accounting data can also be used to systematically collect data on nature, monitor and report nature-related objectives, plan policy decisions and assess the impact of various natural risks, such as the spread of invasive species.  

Full implementation of ecosystem accounting requires a national decision 

An international standard for ecosystem accounting has now been established. The next step is to implement it in UN member states. Many countries already use it or are moving towards full ecosystem accounting. 

The countries leading the way in its application include the UK and the Netherlands. Estonia also has published accounts which describe the extent of its ecosystems. China, meanwhile, has used ecosystem accounting to calculate its gross ecosystem product. This measures the annual added value of ecosystems to the Chinese economy. In the US, the Biden administration has adopted a strategy aimed at introducing natural capital accounting. 

The EU has also taken action. Through the renewal of the regulation on European environmental economic accounts, member states will soon be required to implement a limited version of ecosystem accounting. The Commission’s current proposal obliges member states to examine the ecological status of ecosystems only at a general level and does not, for example, require the evaluation of the monetary value of the services provided by nature. More comprehensive ecosystem accounting would provide decision-makers with a more complete information base.  

“The regulation will only introduce a pared-down version of what comprehensive ecosystem accounting means, as the proposal does not link natural capital to the national economy. Decision-making would be best served by making the economic value of natural services visible. Finland should rapidly introduce comprehensive ecosystem accounting. This requires a national decision,” stresses Miettinen. 

With the implementation of the EU regulation, Finland will, in any case, have to decide how ecosystem accounting will be implemented nationwide. In this context, Sitra proposes that a plan be drawn up for the introduction of ecosystem accounting in line with the international standard and the UN recommendation. In practice, the development of accounting could proceed in stages, with the final goal of implementing each of ecosystem accounting’s five core accounts. 

This would support the aims of the Government Programme of Prime Minister Petteri Orpo to safeguard Finnish natural capital as part of responsible economic policy and to develop an operating model for monitoring the state of the environment. 

“Key data producers and users as well as decision-makers should be involved in this process to ensure that the accounting system serves the needs of society as well as possible,” says Sitra Specialist Tatu Leinonen. 

Finland’s is in a good starting position: the quality of data collection and statistics is exceptionally high, and Finnish research expertise has been closely involved in developing the entire ecosystem accounting framework. A good basis for ecosystem accounting has already been built through the work of the Finnish Environment Institute, Natural Resources Institute Finland and Statistics Finland. In addition, a pilot project co-funded by Sitra has started in Tampere, Pirkkala and Espoo to develop a version of ecosystem accounting for use by municipalities.

Read more:

Sitran työpaperi: Luontopääoma kartalle ja euroiksi – Ekosysteemitilinpito vastuullisen talouspolitiikan työkaluna (summary in English)