As the urgency for large-scale climate and sustainability action grows, Circular GDP could provide the critical framework needed to drive meaningful change.
In today's rapidly changing world, the traditional measure of a nation's economic health—Gross Domestic Product (GDP)—is being questioned for its relevance and impact on sustainability. Historically, GDP has been used to gauge economic growth by measuring the value of all goods and services produced within a country over a specific time period. It serves as a general indicator of economic activity and health, allowing governments and economists to compare growth or shrinkage as benchmarks of economic well-being.
However, does this measure truly reflect the kind of growth that benefits society as a whole?
Looking closer, GDP doesn't differ between economic activities that have destructive, unsustainable outcomes and those that contribute to the regenerative and restorative activities crucial for human survival and prosperity.
This difference is especially troubling when we consider that GDP counts pollution cleanup and military production as positive contributions to economic health, requiring the existence of 'problems' like pollution to justify their economic importance. Similarly, extractive industries such as mining, or unsustainable tourism, fast-fashion etcetera pose serious challenges to our long-term survival. Yet, these are counted as beneficial GDP activities.
In contrast, unpaid care work (such as nursing sick or injured family members, caring or educating children, elderly people, and people with disabilities, cooking, cleaning, securing family necessities like water and fuel) is NOT INCLUDED in GDP calculations. Based on an International Labour Office (ILO) study with data from 53 countries, unpaid care work is estimated to be 9% of the global GDP, worth USD 11 trillion annually. Similarly, GDP does not include volunteer and community work which is vital to help communities heal and thrive. For example, it is estimated that voluntary sector in the United Kingdom contributed £17.8 billion to the UK economy in 2020/21, equivalent to 0.8% of total gross domestic product (GDP).
How can we keep using a measure that rewards activities driving us towards ecological, social and eocnomic crises?
The environmental, social, and governance (ESG) frameworks, which were initially voluntary, are finally gaining regulatory force worldwide. This increased focus on governance is important but not enough on its own. The real change, the teeth in climate and sustainability action, lies in revisiting how we measure economic success — GDP itself.
Why Circular GDP?
Circular GDP is key to real sustainability. Unlike traditional economic measures, a circular economy focuses on systematically creating regenerative and restorative outcomes right from the start (not as an afterthought). This approach ensures that the economy and business activities serve a greater purpose by delivering more good, not just less bad, not only on the natural environment but also on society.
The circular economy framework forces businesses and ecosystem players to consider all the points where decisions were made and challenges us to innovate so that the activity delivers positive outcomes every time it is done. It removes the argument of needing to have those activities and instead refocusses on 'What can happen as a result of the activity?' Unlike the terms 'low carbon', 'green', and 'sustainable', Circular GDP emphasises on the HOW these end goals can be achieved. And this shift in 'how' is needed for real change because we cannot solve problems with the same mindset that created them.
Envisioning Circular GDP Reporting
Imagine this... What if countries not only reported their traditional GDP but also disclosed the percentage of their GDP coming from circular and sustainable initiatives? What if we differentiated out economic activities that were destructive and reliant on the continuouation of problems from those that consistently enabled environment, society and economy to heal?
Such a shift could clearly show which nations in the world are creating positive impacts from their economic activity —those contributing to a more sustainable and fair future — versus those economies taking advantage of the current situation for short-term gain.
Would this provide a way to set targets to phase out unsustainable economic activities while encouraging restorative practices?
Would this prevent shallow compliance with policies and laws that have not real teeth?
By evaluating the sustainability quotient within GDP, nations could be held accountable, making sure economic policies align with their ecological and societal commitments. How would this change the dynamics of global leadership and influence?
Moreover, as investors move increasingly towards sustainability-focused mandates, how would clear circular GDP metrics change the investment scene? As capital shifts towards nations where sustainability is seriously pursued as shown in the Circular GDP numbers, thus increasing pressure on nations to adapt and innovate towards circular economies. This shift would affect not just investment inflows but also competitiveness, trade, human capital development etcetera —supporting a stronger integration of sustainability into national agendas across economic sectors (as it should be!).
Imagine how global leadership, influence, investment and trade would change when countries can be held accountable to thier promised policy targets and commitments?
A Call to Action
The need for action is urgent, and human nature often responds best to challenges. Could transitioning to differentiated GDP reporting begin voluntarily, with non-reporting nations defaulting to a zero-sustainability score? This initiative, proposed by CBASS, seeks your participation. It invites collaboration to change our economic measures, to not only reflect growth but to ensure this growth aligns with the survival and thriving of our species.
By continuing to rely on the traditional, undifferentiated GDP, we are essentially betting that economic activity alone will somehow deliver better well-being and living conditions over time. However, the climate, humanitarian and economic crises we see today suggest that this is a risky bet, based on the assumption that things will simply sort themselves out without careful consideration and deliberate action.
With a differentiated Circular GDP, we can inject more intentionality into our measures, effectively increasing the likelihood of achieving long-term survival and thriving conditions for our species. It is time to consciously redesign our economic measures to ensure that prosperity is achieved not at the expense of our planet and well-being, but is the driver that augments the good that comes from being ALIVE.
Authors: Lewis Chong and Chin Lijin
Views in this article are that of the authors and do not explicitly represent official positions of ACMF Group or Circular Business Association.
ACMF Group is a group of ESG consulting, international private capital-raising, and sell-side M&A consulting firms. ACMF firms are cofounded by over 10 cofounders and shareholders, based out of China, Indonesia, Malaysia, Singapore, Switzerland, Thailand and the United Kingdom, with corporate experiences such as investment bank IPO submission, capital market IPO regulation, business advisory, incubator, venture capital, private equity, large-enterprise M&A, enterprise ESG consultation, climate movement and country climate policy. The cofounders had gone through over ten successful IPOs during the corporate time, two tech unicorns and had been involved in over five United Nations country climate policies.
Circular Business Association (CBASS) is an ecosystem builder that aims to rapidly replace out all unsustainable, linear products in the next 6-7 years with sustainable circular products to solve the climate and create a liveable world. We believe that no organisation can achieve sustainability on their own and thus we answer the ‘Who’ that needs to be assembled to get climate and sustainability commitments done.
All images obtained as free resource from Wix.