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April 6, 2023

Move over, GDP—make room for GEP

It’s time to employ metrics that track the natural world’s value, like GEP and Green GDP.

In the news

You’ve heard of gross domestic product (GDP)—now get ready for gross ecosystem product (GEP), a new term catching on as a way to quantify the value of the natural world’s contributions to human well-being. While the idea isn’t completely new, the continuing march of climate change is lending it urgency and momentum.

The GEP concept was developed by a group of researchers hoping to counteract the tendency to “take free things for granted” by mercilessly exploiting nature and failing to assign it an appropriate value. Overlooking this value is preposterous: According to a World Economic Forum report, more than half the world’s total GDP, $44 trillion of economic value generation, is at least moderately dependent on nature.

Measuring GEP means translating the value of a staggering variety of ecosystem goods and services into monetary terms. For such marketable assets as timber, this is a straightforward process. But in cases lacking straightforward market prices, such as clean air, a variety of alternative valuation techniques are used.

Confusingly, the term Green GDP has arisen concurrently with GEP. The difference is that Green GDP factors in the environmental consequences of a country’s economic growth, such as ozone depletion and reforestation. Thus, it’s fair to think of GEP as one component of Green GDP.

The Cognizant take

Whether you’re tracking GEP or Green GDP, efforts to assign financial value to nature’s bounty are more than just laudable—they’re essential. For most of recorded history, humankind treated the earth as an endlessly renewable font of whatever resources were in vogue at the time—from powdered rhinoceros horn to old-growth timber to whale oil to fossil fuels.

We know how that’s working out.

What remains unclear at this early stage is which levers will be used to turn the concepts of GEP and Green GDP into reality. A necessary step will be creating clear measurements using standardized values and terms. But it will probably take the taxation power of the state to motivate people and businesses to change their behavior. To borrow economist terms, the externality of destroying nature needs to be internalized via monetary pressure.

Understanding GEP and Green GDP, and championing them within the organization, is a good way for leaders to position the organization as a future-ready business and sustainability leader—something that’s increasingly important to both consumers and regulators. Even better, embracing this movement will put you on the right side of history.

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