Work resulting from a collaboration between the University of East Anglia and Bennett Institute for Public Policy in Cambridge has been used by the world’s biggest economy to produce a new national strategy that puts nature on the country’s balance sheet.
US President Joe Biden’s administration recently announced its new US National Strategy To Develop Statistics For Environmental Economic Decisions, which references the joint research with UEA’s Norwich Business School into how environmental risk affects sovereign credit ratings.
The strategy is an interagency initiative by the Executive Office of the President, the White House Office of Science and Technology Policy, the Office of Management and Budget, and the Department of Commerce.
It follows the effort of researchers, including experts from the Bennett Institute and UEA, to shape the strategy, mobilise the public response, and produce the underpinning research, to ensure that natural capital - the stock of natural resources such as soils, air, water, and forests - is counted.
The Bennett Institute’s Wealth Economy team engaged directly with the White House in developing the strategy, which lays out a plan and timeline of 15 years for the US to include natural capital in its accounts.
The collaboration with UEA’s Dr Patrycja Klusak, who is an affiliated researcher at the Bennett Institute, produced the underlying research on which the strategy depends. Specifically, this involved creating the world’s first biodiversity-adjusted sovereign credit rating.
The research team also includes recent Norwich Business School PhD graduate Dr Matt Burke, now at Sheffield-Hallam University.
The strategy cites the team’s report, Nature Loss and Sovereign Credit Ratings, which demonstrates how biodiversity loss affects sovereign creditworthiness, default probabilities, and the cost of public debt, and builds on a study led by Dr Klusak, forthcoming in the journal Management Science.
As the UK’s foremost expert on sovereign credit ratings, Dr Klusak is one of the leaders of the research collaboration, which also includes Cambridge Judge Business School, SOAS University of London, and the University of Oxford.
Dr Klusak, Associate Professor in Banking and Finance at UEA, said: “The world's largest economy recognises its dependence on nature and will make nature count in US economic statistics. This is a big step in the direction of better measuring the economic wealth of the nation and more informed policymaking.
“Once in place, the natural capital accounting system will help the US to address 21st Century challenges like climate change, biodiversity loss, and air and water pollution, and to help the country be more resilient and prosperous.”
“Implementing the strategy will empower businesses and government agencies at all levels with the necessary economic data to navigate them,” said Dr Matthew Agarwala, Lead for the Wealth Economy Project at the Bennett Institute, and Senior Policy Fellow at Yale’s Tobin Centre for Economic Policy. “Critics may argue such knowledge is too costly, but there is no evidence that ignorance offers better value.”
Unveiling the strategy at the World Economic Forum Annual Meeting in Davos in January, US climate envoy John Kerry explained that currently, natural capital is not on the nation’s balance sheet. As a result, standard economic indicators alone provide an incomplete view of economic progress.
The natural capital accounting strategy is inclusive of state, territorial, local and tribal governments and organisations and recommends supporting, when appropriate, their collection efforts and needs regarding natural assets.
UEA has long been a world-leader in the economics of natural capital, with Prof Kerry Turner, Prof Andrew Lovett and Dr Silvia Ferrini from its Centre for Social and Environmental Research on the Global Economy (CSERGE) having similarly contributed to the design of natural capital accounts in the UK and across Europe. Dr Agarwala is also an affiliated member of CSERGE.
