Monthly Review: (In)valuable ecosystems
We are piloting a monthly review of articles that will provide a deep dive into the previous month's content. Here is our first edition:
Last month, the Amazon forest fires dominated international headlines, exposing once again the dire trade-offs that we are making between safeguarding the natural environment and improving economic performance. Our natural environment sustains human life. We rely on it for food, water, shelter, warmth, medicine, carbon sequestration, pollination, climate regulation and recreation. We often take these ecosystem services for granted, exploiting them beyond our environment’s ability to replenish and revive—and to the point where these can no longer be used for economic gain. Current agricultural, fishing and forestry practices are among those hurting the resilience of both the human and natural systems as well as our adaptation and mitigation potential in the face of climate change.
Continuous and elevated investment is needed to safeguard the planet’s resources for current and future generations—this is widely recognized and repeated in the context of climate change, biodiversity and nature conversation. Yet we systematically overlook the abundant and wide ranging social and environmental benefits the natural environment offers us. This is why there is an increasing number of tools and methods to express risks, costs and benefits in terms of economic value. But will adopting the language of business facilitate efforts to conserve, protect and safeguard the planet’s resources?
In a landmark paper published in Nature in 1997, Robert Constanza and his colleagues estimated the annual monetary value of our environment on the global economy to be USD 33 trillion. Within this, they account for 17 benefits or "ecosystem services," from greenhouse gas and climate regulation to water supply, soil formation, nutrient cycling, waste treatment and recreation. More than 15 years later, Constanza and colleagues updated this calculation and suggested that the global value of natural capital was much higher: between USD 125 trillion and USD 145 trillion.
For some, the idea that we can put a monetary value on our natural environment is conceptually (and dangerously) flawed. Such critics contend that given life as we know it depends completely on our natural environment—its value to us is inherently infinite, so how could there be an upper limit? They refer to the monetary valuation of our environment as leading to its commodification and privatization and even go as far to suggest it is “morally wrong, intellectually vacuous, and most of all counter-productive.”
But does putting a price on our natural environment risk it becoming a tradeable commodity?Proponents of "natural capital" argue that it is a practical and pragmatic solution to environmental protection, even if crude and potentially inexact.
Placing a monetary value on these risks and benefits assists the day-to-day prioritization of nature in decision-making around resource allocation; "until we place a proper value on natural capital, the global economic system will continue to merrily saw away at the branch we’re all sitting on." Failing to measure and account for the multiple sources of value provided by our natural environment allows us to ignore and thus consume it to the point of destruction.
Of course, valuation is by no means easy. IISD developed a methodology to value the costs of risks of infrastructure, known as SAVi - Sustainable Asset Valuation. SAVi provides policy-makers and investors with a comprehensive analysis of how much their infrastructure projects and portfolios will cost throughout their life cycles, taking into account risks that are overlooked in a traditional valuation, such as the impacts that climate change or environmental degradation can have on financial performance. But even if we are capable of valuing the environment, then who should be responsible for valuing it?
The investment community is waking up to the financial returns afforded by sustainable agricultural practices that regenerate and preserve our natural environment and its ecosystem services. There is also a growing understanding of what constitutes “good practice.” This month, we highlighted various projects working to kickstart and accelerate investment into regenerative agriculture, sustainable forestry and water efficiency programs. According to one estimate, over 70 US-based investment vehicles accounting for USD 47.5 billion are already integrating regenerative agricultural practices into their portfolios. Such practices aim not only to conserve the land on which farmers work, but also regenerate and revive that land through replenishing topsoil quality, capturing carbon and enhancing ecosystem services.
Elsewhere, a group of top-tier corporate actors are leading investments in sustainable forestry, given the financial rewards available from this asset class. In India, MOUs between the local government, farmers and agri-businesses are encouraging water efficiency, driving crop production and providing a sustained source of income across the value chain.
As the articles this month show, investments in sustainable infrastructure projects are rising, allowing practitioners and communities to continue to benefit from the natural environment while protecting, conserving and even regenerating it for future generations. Arguably it is the financial return made available from these projects that drives both investor interest and action.
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