Best Practice Report

Index

Monitoring and evaluation / Indicators / Headline indicators
2.1.

Headline indicators

Indicators such as gross domestic product (GDP), inflation, unemployment, Gini coefficients, average income, and related measures have long provided a focus for economic policy making. Governments in a growing number of countries (including Bangladesh, South Africa, and China) set explicit nominal GDP targets on a regular basis (Hoelle and Peiris, 2013). Many countries also set inflation rate targets (Roger, 2010).

In order to pursue green growth, governments need a new set of indicators that supplement conventional economic indicators with information on green job creation, resource consumption, natural capital and pollution (including greenhouse gas emissions) as well as human welfare.

The OECD has developed a framework of headline indicators through consultation and testing across a range of countries (OECD, 2011). It is focused on the socio-economic context and characteristics of growth, environmental and resource productivity, the natural asset base and economic opportunities and policy responses.

The Czech Republic, Denmark, Germany, Korea, and the Netherlands have all produced green growth indicators following the OECD framework. Korea’s green growth monitoring strategy, for example, includes 23 indicators distributed within these four thematic areas (Statistics Korea, 2012). These indicators are used to assess if key trends are heading in the right direction, to determine how a country or region stands in relation to others, and to identify policy responses that could help improve performance. As another example, the City of Copenhagen has created the first local-level green indicators study using the OECD Framework. It includes a ’dashboard’ of 21 indicators that are being used to identify areas of excellence, areas of needed improvement, and appropriate policy responses (Martinez-Fernandez et al., 2013). Green skills were noted as one area for improvement, and a list of policy interventions was then identified, such as fostering green vocational education and training.

The use of common themes across international, national, and local levels allows comparison of trends and patterns. In some cases, it may be possible to use the same metric or indicator at all levels, but in many cases indicators that are meaningful at the national level may not be meaningful or relevant at the community level. For example gross domestic product (GDP) is important at the national level while income is important at the local level. By allowing cities or communities to choose indicators that are relevant to a theme such as economic growth, trends between the national and local levels can be compared meaningfully and in a way that is both relevant to national policy goals and to communities.

Additional to these headline indicator sets, it is also useful to include at least one overarching composite headline indicator that provides an even higher level of aggregation. The advantage is that it provides a clear message for policy makers to communicate to the media and citizens (OECD, 2011). Bhutan for example developed a ‘Gross National Happiness’ Index; assessing both green economy elements like pollution as well as factors such as political freedom that underpin well-being (Ura et al., 2012).

A number of composite indicators have been developed by international institutions, including the Ecological Footprint, Genuine Progress Indicator and the World Bank’s measure of Genuine Savings. No global consensus has yet emerged on which of the various options are most effective (Case 1).
 

Case 1: Composite headline indicators

The Ecological Footprint (EF): The ecological footprint is a spatial measure of how much of the Earth’s renewable carrying capacity on land and in the sea has been appropriated by production, consumption, and waste. When the footprint exceeds renewable carrying capacity – for example, when poor agricultural practices cause soil erosion – ecological overshoot and natural capital depletion is said to occur (Ewing et al., 2010). The footprint could thus provide a useful headline composite indicator of environmental sustainability. While there are several theoretical and computational issues that still need to be refined, the Global Footprint Network has now engaged 57 countries and many other units of state and local government on plans for use of this headline sustainability metric (global Footprint Network, 2010). Governments that have adopted the EF are using it as a guide for planning a more sustainable future. For example, the City of Calgary (2013), Canada is using footprint analysis to promote home energy savings, local food consumption, and green offices to its residents.

The Genuine Progress Indicator (GPI): Pioneered in the late 1980s and refined in several iterations since that time, the GPI is designed to be an aggregate measure of sustainable economic welfare. In contrast with GDP, which measures economic activity alone, the GPI is designed to measure the true benefit or ‘net psychic income’ humanity receives from its consumption of market and non-market goods and services after all externalities are accounted for. It also provides an indication of the extent to which this consumption is sustainable over time after taking into consideration depletion of the natural, human, social, and built capital stocks on which all economic activity ultimately depends (Lawn, 2003). GPI accounts and applications have been completed in 17 countries that account for 53% of the world’s population and 59% of gross world product (Kubiszewski et al., 2013). As governments adopt the new metric, it can be a catalyst for change. For example, in the US, the State of Maryland (2013) has adopted the GPI and is using it “to measure how development activities impact long-term prosperity, both positively and negatively.”

Genuine Savings (GS): Genuine Savings was developed for the World Bank and is defined as “the true level of saving in a country after depreciation of produced capital; investments in human capital (as measured by education expenditures); depletion of minerals, energy, and forests; and damages from local and global air pollutants are taken into account” (Hamilton, 2006). It thus provides an important indication of sustainability. The GS has been calculated for 120 countries. One significant finding detailed from GS applications is that increased wealth in a country is primarily the result of an increase in intangible wealth-human capital and the formal and informal institutions that humans create. The GS has been used in Ghana, Ecuador, Egypt, Indonesia, and other countries to show the value of natural resource assets and assess the costs of degradation. In these places, the GS “helped strengthen the World Bank’s dialogue with countries about economic growth and sustainable development strategies”
(The World Bank, 2013).