Modelling what matters: How do current models handle environmental limits and social outcomes?

Our societies face the paradox of increasing environmental degradation while not meeting the basic needs of the global population. Macroeconomic models are an essential policy tool to navigate these intertwined crises, which can help us understand which policies are required to steer us towards a more sustainable society. The main outcome variable in many of these models is the total value added from the production of goods and services (Gross Domestic Product or GDP), which is increasingly seen as inadequate to assess the broader well-being of societies and the planet. In response, there is a growing call to move beyond GDP and to adopt a broader set of indicators that account for social and environmental factors alongside economic performance.

In a recent study, which was published in the Journal of Cleaner Production, our team analysed the documentation and code of 50 macroeconomic models to assess whether and how social and environmental indicators are included in these models. For the indicators, we based our analysis on the frameworks of the “Doughnut” of social and planetary boundaries and the United Nations Sustainable Development Goals (SDGs). The Doughnut proposes a set of social foundations that should be achieved for every human being, while respecting a set of ecological limits (or planetary boundaries) to avoid overburdening Earth’s ecosystems.

We found that on the environmental side, there has been a strong focus on modelling climate change, energy use, and land conversion. Many other environmental indicators such as soil quality, biodiversity loss, and chemical pollution were rarely modelled in our sample. On the social side, we found a focus on more traditional economic variables such as employment, income poverty, and economic development (i.e. productivity gains). The least included social variables were less tangible concepts such as peace or life satisfaction.

We also analysed which model variables are most often used as drivers for social and environmental indicators. For this, we studied 15 models in detail and identified recurring approaches to modelling social and environmental indicators. The main environmental drivers were total economic production and production in the agricultural sector. On the social side, income per capita, government spending, and governance were the most important variables affecting social outcomes in the models we analysed.

Towards a decent life for all within planetary boundaries

These results show that most models focus on a small set of social and environmental indicators and that there is a strong reliance on monetary flows as drivers of these indicators. Although monetary flows play an important role, limiting ourselves to these variables inhibits our understanding of how we can increase well-being without further growth in consumption and production.

Addressing the combined challenge of social shortfall and ecological overshoot will require a shift in thinking. In the article, we argue that we should focus more on what really matters, namely the achievement of a decent life for all within environmental limits. Models can help pave the way by integrating environmental, social, and economic dimensions and by replacing the goal of GDP growth with a broader set of social and environmental targets. Moving beyond GDP can help us redesign our economies in such a way that essential goods and services can be provided for all people while respecting planetary boundaries.

Access the full article in the Journal of Cleaner Production below:

The full article may be cited as:

Van Eynde, R., Horen Greenford, D., O’Neill, D.W., Demaria, F., 2024. Modelling what matters: How do current models handle environmental limits and social outcomes? Journal of Cleaner Production 476, 143777. https://doi.org/10.1016/j.jclepro.2024.143777