A proposal to scale up the WAVES Partnership Environment and Natural Resources Global Practice,
in collaboration with the Finance, Competitiveness and Innovation Global Practice, and with the Treasury Department, the World Bank
The depletion of natural capital – including assets like forests, water, fish stocks, minerals, biodiversity and land – poses a significant challenge to achieving poverty reduction and sustainable development objectives. The issue is especially important in developing countries. Low-income countries, in particular, depend on natural capital for 47 percent of their wealth. And yet, in several of these countries, natural capital is being depleted without any corresponding investments in human capital (such as education or health) or produced capital (such as infrastructure), leading to an overall decrease in wealth and a failure to improve standards of living among the poor.
Building on the experience of the WAVES partnership (Wealth Accounting and the Valuation of Ecosystem Services), the World Bank has developed the new “Global Program on Sustainability” (GPS) to expand the application of a `sustainability’ lens to decision making in developing countries. Structured around three inter-connected pillars of engagement (information, implementation, and incentives - Figure 1), the GPS will contribute to achieving the Sustainable Development Goals by supporting developing countries’ efforts to manage their natural capital sustainably.
In implementing GPS, the World Bank will collaborate with partners active in this space, including UN agencies (UNSD, UN Environment, FAO), IPBES, Natural Capital Project at Stanford, Global Earth Observation (GEO) Platform, NASA and the European Space Agency; NGOs such as IUCN, WRI, WWF, TNC, academics and other experts. The work will be carried out in the context of the SEEA framework (System of Environmental-Economic Accounting), the UN-sanctioned standard for Environmental data collection and use. Table 1 provides an overview of the Program, including the components of each pillar. The rest of this note summarizes the rationale and key features of each of the program’s pillars.
Pillar 1: Global information on natural capital and sustainability
While significant progress has been made in assessing environmental sustainability (including through the recent World Bank report on “The Changing Wealth of Nations
”), important gaps remain, both in terms of adequately measuring and monitoring the different components of natural capital and the associated ecosystem services; and of promoting the use of that information to inform policy and investment decisions. To address these challenges, Pillar 1 will support the following activities:
- Improving the measurement and availability of data at the global level on important forms of natural capital currently not systematically assessed (e.g. water, fisheries, etc), as well as ecosystem services (e.g. nature-based protection from natural hazards, sediment regulation, crop pollination); improved data in physical terms will be complemented wherever possible by valuation in monetary terms;
- Evaluating the sustainability performance of as many countries as the data permit, looking at the national, sector, and local levels, and using approaches such as decoupling indicators, extended multi factor productivity analysis, valuation of economic externalities, etc.;
- Producing high-visibility reports, like an expanded version of The Changing Wealth of Nations, which will provide new insights to the global debate on sustainability, based on the findings of the analyses outlined above.
- Developing systems to better integrate environmental sustainability in concessional financing (e.g. IDA allocation), to reward good performance against sustainability targets.
- Overall, this work will support the achievement of several SDG targets: for example, SDG target 17.19, “to develop measurements of progress on sustainable development that complement Gross Domestic Product (GDP), and support statistical capacity building in developing countries”); and, more generally, it will encourage countries to make sustainability approaches the norm.
Pillar 2: Country-level support to integrate natural capital approaches into decision-making
Many developing countries lack comprehensive natural capital accounts, or the capacity to use such information in designing policies for sustainable growth. As a result, it is difficult to assess whether advances in GDP or other macro-economic indicators are being achieved with concomitant decreases or increases in natural capital, or how long GDP growth can be sustained. Pillar 2 builds on the earlier WAVES strategy of strengthening country capacity for producing and using natural capital accounts for policy decisions. Activities will focus on:
- Building and institutionalizing natural capital accounting systems at the national level in 8-12 Core Implementing Countries (CICs), including through recipient-executed activities, which could be included as component in World bank projects, as part of the overall support to implement the World Bank’s Environmental and Social Framework (ESF)
- Providing targeted Technical Assistance (TTA) to meet countries’ requests in the design, implementation, monitoring and evaluation of 16-24 specific policies, programs or projects
- Collaborating with partners to establish and support regional cooperation efforts, such as communities of practice and knowledge exchanges that provide opportunities for peer learning and training;
- Supporting global knowledge-sharing and strategic partnerships, notably the annual Natural Capital Accounting Policy Forum series.
Pillar 3: Sustainable financing and investment in natural capital
Long-term investment decisions require adequate information about risks and opportunities related to environmental sustainability. For example, unsustainable use of water or land may create risks to the bottom line of enterprises that depend on such resources; or the fiscal balance of sovereigns on whose territory this degradation occurs. These events may can become material to the credit of the issuers, potentially creating systemic risk in the portfolios of banks financing them. Whether through the fiscal or the financial channel, these risks ultimately affect sovereign credit, and should be accounted for. “Impact” investors are looking for opportunities to finance better management of natural capital and need reliable information on the prospects for meaningful environmental outcomes of their investment, while asset managers can use it to design products that enable value investment (e.g. products focusing on the most environmentally sustainable countries). It is widely recognized in the financial community that solid information on environmental risks and performance is at present either lacking or considerably inadequate, especially for sovereign securities. Activities under Pillar 3 are meant to address these shortcomings: by:
- Providing information on environmental risks and opportunities of investments in fixed income securities; including appropriately organized data, as well as research and “proof of concept” demonstrations on how to use the data in the development of relevant applications (e.g. asset pricing models), enabling market operators to use this material to develop their own models;
- Developing a diagnostics framework to assess the impact of climate and related environmental risks and opportunities on the financial sector, including piloting of this framework in a selection of target countries;
- Provide capacity building and technical assistance on implementing sustainable finance measures (including through reporting) and instruments at the country level.