The Value of Everything: New Inquiry Working Paper
Date: 22 Dec 2015
Considering the design of a sustainable financial system means answering questions in the trillions. How much annual investment is needed to achieve the Sustainable Development Goals? How much for the ongoing transition to a low-carbon economy? How much of our assets are at risk because of damage to the environment? How much of fossil fuel-based assets may turn out to have been overvalued? And what volumes of assets are managed by investors that recognize they need to pay attention to these questions?
To put any such numbers into context you need both a numerator and a denominator, and you need to differentiate between stocks and flows. This working paper seeks to provide an estimate of the denominator for stocks of global assets: What is the value of everything?
Overall this working paper counts some $450 trillion. The largest three four asset classes are fixed income financial instruments (such as bonds and treasury notes) at $100 trillion, followed by property at $95 trillion, including the value of people’s homes, cash at $75 trillion and public companies, represented by their share values at $67 trillion.
While the paper is entitled ‘the value of everything’, several kinds of value are not included – such as the value of ‘human capital’ (i.e. knowledge and skills), the value of the institutions, and the value of nature (nor does it touch on the question of how assets are distributed).
This is not because these are not important questions, but rather because the paper is intended to provide a snapshot of the current state of affairs; the valuations which are recorded on balance sheets and which inform today’s investment decisions.
Our current measures of value, both at the level of national accounts and individual investment decisions suffer from extreme narrowness. The Inclusive Wealth Report offers a different perspective, estimating total global wealth at $590 trillion (in 2010) – including $363 trillion of human capital, $157 trillion of produced capital and $71 trillion of natural capital. Our collective assets generate a gross world product of around $80 trillion. This is of course a measure of flow, but similarly to the ‘value of everything’ calculation it only measures value that can be monetized, and not for example the value of family care, ecosystem services or the costs of environmental damage. Costanza et al estimate that natural systems such as soil, water and atmosphere provide an additional $130 trillion a year worth of ‘ecosystem services’ to societies (suggesting that estimates of natural capital given above are several times too low).
This working paper is a contribution to the broader work of the Inquiry and others on the future of value and how we should optimize and protect it for the future. Global estimates give some perspective on the magnitude of stocks and flows and their potential relationships. They are a starting point for further research on the questions of how to assess current and future value with corresponding implications for real economic growth, as well as for strategies to align financial decision making with sustainable value.