Integrating Sustainable Development Goals (SDGs) into GDP Accounting

Introduction

In 2015, the United Nations adopted the 2030 Agenda for Sustainable Development which put

forth 17 Sustainable Development Goals (SDGs) as a universal call to end poverty, protect the

planet, and ensure prosperity for all. Unlike the Millennium Development Goals (MDGs) which

preceded them, the SDGs take a more holistic view of development encompassing not just

social but also environmental and economic dimensions in an integrated manner. However,

despite the growing prominence of the SDGs, most national economic accounting still primarily

relies on gross domestic product (GDP) as the core indicator of progress. GDP measures only

market economic output but neglects various costs associated with activities like pollution,

resource depletion, and social issues. Integrating sustainability dimensions into GDP accounting

could help reorient policies and investment towards realizing the SDGs.

This paper will make the case for integrating the SDGs more directly into how countries

measure and report economic progress through GDP accounting. It will first provide an overview

of the development of GDP and some associated limitations from a sustainability perspective.

The content and goals of the SDGs will then be summarized with a focus on areas not fully

captured by GDP. Several approaches for augmenting GDP with sustainability indicators

aligned to the SDGs will be proposed and analyzed. The conclusion will argue for

operationalizing integration through multi-dimensional well-being frameworks to support more

holistic, impactful policymaking and business strategies for achieving the 2030 Agenda.

GDP - A Narrow View of Progress

Since its establishment after World War 2 by organizations like the United Nations and OECD,

GDP has become the preeminent metric for tracking national economic progress globally. It

represents the total monetary or market value of all final goods and services produced within a

territory over a period of time, usually a year or quarter. GDP is calculated through approaches

summing consumer and investment expenditures, the incomes generated through production

(value added), or totals of industries' outputs. As such, it indicates the size and growth of the

overall economy.

However, GDP was never intended to be a comprehensive measure of societal well-being or

sustainable development. By construction, it excludes factors outside of market production and

prices goods/services based solely on exchange value rather than social/environmental

impacts. Critically, GDP fails to account for costs associated with activities like natural resource

depletion, environmental pollution, human capital depreciation through things like

unemployment, and economic impacts of income inequality. Improvements in these non-

production areas are undetected by GDP increases alone. Similarly destructive but non-market

activities such as crime, litigation or conflict can increase GDP through generating associated

production/employment.

Over-reliance on GDP as a primary policy target through "growth at all costs" biases economies

in unsustainable directions, incentivizing activities degrading social/environmental capital in the

long-run. GDP's narrow view of progress obscures trade-offs between different welfare

dimensions crucial to consider holistically under the SDG framework. Integrating the 2030

Agenda's principles directly into core national accounting practices would help reorient

economic thinking and measurement towards more systemic well-being and sustainability.

The SDGs and a Broader Development Agenda

The 17 SDGs agreed upon by all UN member states in 2015 provide an integrated blueprint to

end poverty and achieve sustainable development globally by 2030 in its three dimensions -

economic, social, and environmental. Key goals span issues like:

- SDG 1 - No Poverty and SDG 2 - Zero Hunger addressing basic needs

- SDG 3 - Good Health and SDG 4 - Quality Education developing human capital

- SDG 5 - Gender Equality, SDG 8 - Decent Work, and SDG 10 - Reduced Inequalities fostering

inclusiveness

- SDG 6 - Clean Water and Sanitation, SDG 7 - Affordable Energy, SDG 11 - Sustainable Cities

providing essential infrastructure

- SDG 12 - Responsible Consumption, SDG 13 - Climate Action, SDG 14 - Life Below Water,

SDG 15 - Life On Land safeguarding the environment

- SDG 16 - Peace, Justice and Strong Institutions and SDG 17 - Partnerships for the Goals

supporting good governance

Crucially, the SDGs place development on a triple bottom line going beyond just economic

measures of progress by integrating social and environmental dimensions. They also stress

indivisibility and interlinkages between diverse goals in line with a systemic understanding of

well-being and resilience. Achieving this holistic development agenda requires economic

policies and business strategies coherent with sustainability. However, with GDP as the primary

metric, capturing linkages and trade-offs envisioned by the integrated SDG framework proves

difficult.

Approaches for Integrating the SDGs in GDP Accounting

While GDP reporting should not be fully replaced, augmenting it with SDG indicators in national

accounts could help fill gaps and guide more balanced policymaking. Several leading models for

integration shed light on how this alignment may occur:

1. Satellite Environmental-Economic Accounting: Organizations like Eurostat and the UN

pioneered frameworks using satellite accounts to estimate sustainability indicators alongside

core GDP reporting. Monetary values are assigned to natural and social capital depreciation

uncaptured by GDP to supplement national balance sheets. Examples include adjusted net

savings indicators accounting for items like education expenditures, mineral depletion, pollution

damages.

2. GDP and Beyond Initiatives: Several countries experimenting with well-being frameworks

beyond GDP publish supplementary indicators aligned with SDG targets covering subjects from

health to societal connections. Examples include New Zealand's Living Standards Dashboard,

UAE's National Indicators, and ongoing OECD Better Life Initiative indicators. While not

replacing GDP, such multidimensional measurement highlights more dimensions of progress.

3. Natural and Social Capital Accounting: Physical Flow Accounting measures material and

energy inputs/outputs across the economy related to environmental impact goals. Work also

advances to assign values to societal domains like health, education, empowerment to factor

non-market contributions to well-being under goals like SDG 3 and SDG 4. Including these

adjusted measures alongside GDP provides a more complete picture.

4. Sustainable Development Index: Tools like the Bertelsmann SDI evaluate overall SDG

achievement through composite indices comprised of nationally reported indicators aligned to

each goal. Strong coverage and presentation as a multi-faceted dashboard better highlights

strengths/weaknesses than GDP in isolation. Though not a replacement, it supplements

economic reporting.

5. Hybrid Green GDP: Adjusted measures estimate "Green GDP" by deducting environmental

externality valuations from traditional GDP based on satellite accounts. Examples include China

and Brazil's forays incorporating areas like resource depletion, pollution mitigation costs. This

partial substitution directly links sustainability impacts to core economic output metrics.

Operationalizing SDG-Aligned National Accounting

Fully integrating the SDGs into how countries officially measure progress through GDP

accounting represents an evolving process. Key considerations include:

- Build statistical capacity and standardize SDG indicator measurement/reporting at the national

level as a basis for multi-dimensional frameworks.

- Gradually include satellite environmental-economic, natural/social capital, and selected hybrid

adjustments to core GDP reporting to paint a fuller picture of costs/benefits.

- Present supplementary multidimensional dashboards alongside traditional GDP to facilitate

policymaking and public understanding of interlinkages between development pillars.

- Conduct regular reviews assessing impacts of policies/behaviors on dimensions beyond GDP

as part of strategy/planning and budgeting processes informed by SDG goals/targets.

- Foster cooperation amongst statistical agencies, finance ministries, and sectoral bodies to

align data systems and create policy coherence around integrated well-being/sustainability

metrics.

- Link frameworks directly to public/private sector decision-making through mechanisms like

strategic sustainability reporting integrating financial, social and environmental impacts.

- Continue advances in satellite accounting methodologies and data availability to strengthen

valuation of impacts not priced in markets but critical to well-being and resilience.

Progress will vary across contexts based on capacity and priorities. A stepwise approach of

testing complementary indicators, strengthening related institutions and gradually codifying

selected adjusted aggregates represents a practical compromise balancing rigidity of core

accounting standards with advances in understanding.

Conclusion

In summary, this paper argues that aligning how countries measure and report economic

progress more directly with the SDG framework through national accounting can help reorient

policy and investment decisions towards sustainability and realizing the 2030 Agenda. While

GDP remains an important metric, its limitations necessitate augmenting core reporting with

multi-dimensional indicators of progress spanning social, environmental and economic well-

being as envisioned by an integrated approach to development. Operationalizing

Supplementary SDG-based dashboards and gradually integrating adjusted aggregates focused

on natural/social capital and externalities shows promise. Continued statistical efforts to

strengthen availability and standardization of sustainability data support evolving approaches

that move beyond GDP as the singular measure of success. Overall, accounting innovations

coherently linking measurement of societal welfare to the interlinked objectives of the SDGs can

power more impactful, resilient development on a systemic level over the long-term.