Environment and economic growth
Inclusive wealth refers to a holistic approach of considering all relevant indicators that influence economic growth.
Growth measurement is currently limited to the gross domestic product (GDP). Taking GDP as the sole indicator of development, we ignore some important social indicators like education and healthcare, and environmental indicators like natural resources. Therefore, relying on GDP alone, the national policy and planning process is missing the opportunity to include the much-needed dimensions of development that constitute sustainable development.
Sustainable development has three important pillars – social, economic and environmental – that take care of the needs of current generation without compromising those of the future generation. Therefore, inclusive wealth primarily focuses on three major indicators – human capital, produced capital and natural capital.
The Inclusive Wealth Report (IWR) provides valuable insights into investment strategies of countries for educational, healthcare and environmental improvements, and the index is an indicator for guiding towards multi-faceted sustainable development.
The process of inclusive wealth was initiated in 2012 with the launch of IWR at the United Nations Conference on Sustainable Development during Rio+20 held at Rio de Janeiro, Brazil.
Over the years, the growth and development paradigm has moved from simple development in the 1960s and 70s to environmental development in the 90s to sustainable development in the 2000s and to the current day inclusive wealth.
The IWR 2012 compared the relative increase or decline in natural capital against the performance of produced capital and human capital. It was revealed that the components of wealth of a country can be linked to the economic progress through changes in natural capital, thereby significantly impacting a nation’s economic productive base of GDP.
Thereafter, the IWR greatly expanded its scope and covered 140 countries including Canada, China, India and Morocco, which have produced their IWR and many others are working on it. Pakistan, with the support of UN Environment Programme (UNEP), launched its first IWR earlier this month on the eve of World Environment Day.
This year, the theme of the World Environment Day is “Ecosystem restoration with a special focus on creating a good relationship with nature”.
As is observed globally, numerous drivers of environmental degradation are at play in Pakistan. The reliance of growth primarily on GDP is a major driver, besides ignorance of social and environmental parameters, which are essential pathways for sustainable development.
In general, environmental considerations have not been properly integrated into planning and development strategies, though this has changed in recent years with a shift in focus to protecting the natural wealth possessed by Pakistan.
The large and growing population of the country exacerbates many growing pressures on environmental resources. Since 1947, Pakistan’s population has increased at an average rate of 2.7% per annum with an estimated population of 225.2 million in 2021.
Human activity and expansion of urbanisation and industrialisation has brought economic benefits to citizens, but has also resulted in widespread degradation of land, deforestation, intensified water scarcity and biodiversity loss.
Coastal areas of Pakistan have especially suffered from environmental degradation such as mangrove loss, overfishing and land reclamation.
Recent trends in natural capital
Natural capital is described as the world’s stock of natural assets that include geology, soil, air, water and ecosystems generally.
The depreciation and degradation of natural capital is closely related to the negative externalities resulting from the development of various sectors of the economy, particularly non-renewable resources.
According to the most recent iteration of UNEP’s flagship IWR, many countries in Asia have been experiencing declines in natural capital, and Pakistan is no exception.
During the period 1990 to 2014, Pakistan suffered an average loss of 5% in natural capital per capita, the steepest decline among the 26 Asian countries included in the calculations.
There has now been a reverse trend where natural capital has grown since 2018, likely boosted by Pakistan’s restoration efforts such as mangrove ecosystem restoration in coastal areas and tree plantation schemes such as the Billion Tree Programme, which has later been scaled up to the Ten Billion Tree Tsunami Project. Pakistan is showing the ways in which nature-based solutions can synergise multiple objectives such as ensuring sustainable livelihoods and food and water security and acting to reduce poverty.
Pakistan also announced in 2020 that 15 national parks would be established in the near future, creating 5,000 jobs in the process. The objectives of environmental improvement and economic growth are necessarily interconnected. It is not possible to simply “grow out” of environmental or social problems by focusing on economic growth alone and this has been shown time and again.
The World Bank (2006) found that focusing on prevention and mitigation of environmental degradation was much more cost effective than allowing environmental neglect in the pursuit of GDP growth in the hope environmental and social indicators would improve.
The fact that in 1990 Pakistan’s deforestation rate was higher than other countries in the same income group despite a better economic growth demonstrates this further.
In recent years, Pakistan has recognised that the cost of inaction is greater than that of ecosystem restoration itself and has implemented ambitious and successful strategies for halting and reversing the decline in natural capital.
Inclusive wealth offers opportunities to Pakistan at local, national and international levels. At the local level, it will greatly help in income generation activities, job creation, literacy, skill development, increased productivity and resource mobilisation.
Nationally, inclusive wealth will help in informed decision-making, policy and planning, ensuring food security, water supply, human resources development, vibrant trade, mainstreaming the sustainable development agenda and fulfillment of the country’s international obligations.
Globally, inclusive wealth will help in achieving the international obligations such as enforcement of the Multilateral Environment Conventions ratified by Pakistan, achievements of Sustainable Development Goals (SDGs) Agenda 2030 and effective coordination.
This way, Pakistan can greatly benefit from the knowledge and techniques used in knowing the status of parameters of inclusive wealth such as human capital, produced capital and natural capital, and aligning them with the policy and planning process.
The writer is a PhD in natural resource management, consultant for the UN Environment Programme and co-author of the first Inclusive Wealth Report of Pakistan
Published in The Express Tribune, June 21st, 2021.
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