The value of natural capital: a risk or an opportunity?

What is the value of a forest? And that of a river? The answer depends on whom you ask: indigenous people who depend on the forest and consider trees and water streams to be sacred surely have a totally different idea than the manager of a timber company.
Field Coverage

Nevertheless, there is a growing debate among international organizations, environmental NGOs, and the business community about the need to quantify the value of natural capital: land, air, water, living organisms and all formations in the Earth’s biosphere, as well as ecosystem services or tangible and intangible benefits we obtain from nature, such as food production, water purification, and regeneration. But would putting a price tag on natural resources really help to preserve them? Not everybody agrees.
How to stop the depletion of natural resources
We rely thoroughly on nature to sustain human life. However, the value of our biosphere is seldom taken into account in economical and political decisions. We are overexploiting our planet, depleting many crucial resources and endangering our future simply because we consider nature to be an unlimited and free source. According to the Millennium Ecosystems Assessment, around 60% of the world’s ecosystems are already degraded. The conservation efforts put in place in the last decades have proved insufficient to really protect environment and biodiversity. A quarter of all plant species mentioned in the United Nations Convention on Biological Diversity, risks to disappear, depriving us of medicines, food and raw material.
Jonathan Hughes, director of the World Forum on Natural Capital, which took place at the end of November 2013 in Edinburgh, compares this crisis to the financial bubble that burst in 2008: “We’re creating a natural capital debt bubble. If we continue to take resources from the planet at the rate we are taking them, then we will eventually reach a tipping point”. “If we want to stop this we need to integrate natural capital evaluation and accounting into the economic system, which drives a lot of our behavior” says Gerard Bos, director of the Global Business & Biodiversity Programme at the International Union for Conservation of Nature (IUCN).
“Giving a monetary value to natural capital is a way to put it on equal footing with financial and social capital. This would allow companies to insert it in balance sheets and profit and loss accounts.”
We need to calculate not only the costs of exploiting and polluting water, land or air but also the benefits tied to a responsible use of resources. For example, if in sustainable forestry only 5 per cent of the trees are cut for timber and the rest is spared for future harvest, those 95% are important as well because they provide capture carbon, water catch, soil creation, and the beauty to be in a forest – “Assets that are not properly valued at the moment and therefore not integrated in economic models” points out Bos.
But how can this be done in practice? “A lot of initiatives have been carried out for a long time by the conservation community, but we have not been able to reach the financial community yet” adds Bos.
A commitment from the business community
At the Rio +20 Summit in 2012, was the financial community which decided to take action drafting the Natural Capital Declaration, a “commitment from banks, investors and insurance firms to change their business models to reflect the materiality of natural capital for the financial sector. “
The World Business Council for Sustainable Development (WBCSD) is working to help companies to measure, value, account and report on ecosystem services. “ It’s first about understanding not only impact, but also dependence, on nature. And then looking at what that means in terms of risks and opportunities” reckons Eva Zabey, Manager Ecosystems and Natural Capital at WBCSD. “We have many tools developed by and for the business community to help them on this journey, as highlighted in Eco4Biz, but there are still gaps. That is why there is an effort to develop a Natural Capital Protocol, a harmonized framework for valuing natural capital in business decision making.”
Some companies have already tried to calculate the environmental externalities of their activity. Puma, a sports apparel producer, was the first to publish in 2011 an Environmental profit and loss account (EP&L). The environmental impact of greenhouse gas (GHG) emissions, water and land use, air pollution and waste, generated by operations and supply chains of Puma sum up to 145 million euro: 51 million resulting from land use, air pollution and waste; 94 million for GHG emissions and water consumption. “It’s great progress although quite naturally it focuses mainly on the “L” – the losses – part of the EP&L which leads to the question of how to incorporate the “P” – the profits?” comments Zabey. “I assume other companies have been exploring this internally as well but are not willing to share the results yet.”
What are governments doing?
The same process is happening at governmental level. In 2010, at the Convention on Biological Diversity meeting in Nagoya (Japan), the Wealth Accounting and the Valuation of Ecosystem Services (WAVES) was launched. It is a global partnership that brings together UN agencies, governments, international organizations, NGOs, and academics to implement Natural Capital Accounting (NCA). Its main goal is to promote sustainable development by ensuring that natural resources are integrated in development planning and national economic accounts. Partners like Costa Rica are promoting laws to incorporate the value of natural capital in development planning. In the UK the government has set up a high-level Natural Capital Committee to help the government better shape decisions. These are crucial steps. If governments have a better perception of the true value of national resources they can take more responsible decisions. For instance, digging out minerals in a specific area produces wealth for the State, but is it worth the loss of the forest that has to be cleared to open the mine? The TEEB for business coalition has calculated that cattle ranching in South America has natural capital costs of 312, billion US dollars a year but provides revenues of only 16,6 billion US dollars. From this point of view South American governments should probably invest more in protecting forests, rather than destroying them to cultivate crops for cattle feeding.
Turning nature into a commodity?
Although Hughes calls natural capital valuation the «quiet revolution», the idea encounters a lot of skepticism too. “There are serious doubts about how feasible and objective valuation processes really are”, notes Joe Eisen from the Rainforest Foundation. “How do you assess and compare the value of a fairly widespread and commonly used or exploited species against the value of a species that is extremely rare but not used by humankind? And then again, valuable to whom? The value of any given natural asset is likely to be massively different for a world banker than for a pygmy! .”
A group of NGOs protested outside the World Forum on Natural Capital against the “great nature sale”, claiming that nature is unique and complex and that it is impossible to fully measure biodiversity. What is worrying them the most is the idea that once the natural capital has a monetary value it could also be traded, with harmful consequences. “Once you put a price tag on nature in order to protect something, you will find someone who pays that price in order to destroy it” points out Nick Dearden, director of World Development Movement, a British NGO that is strongly critical about the process of natural capital accounting.
“We do not want nature to be turned into a commodity, or let financial markets decide what is the right price of a clean river or a forest” says Antonio Tricarico of RE: Common, one of the NGOs that signed a declaration against the sale of nature. “Why are companies and some conservation organizations willing to assess natural capital? To prove that is extremely precious?” asks Tricarico. “We know that. Estimates say that ecosystem services provided annually by our biosphere add up to 33 trillion US dollars, almost half of the global GDP.”
“What the Natural Capital Declaration clearly states is that the only way to preserve nature is to make it subject to the market laws” says Tricarico. According to Re: Common and other NGOs, the financial community is only interested in new forms of investment, after speculating on land and food commodities. The so-called biodiversity offsetting schemes, that affirm that a forest or a marshland in one place can be destroyed as long as an equal value gets created elsewhere, are seen as an opportunity. “But previous attempts to create a market for nature have completely failed”, adds Tricarico. “Just look at the carbon emission market and its total inability to do what it was designed for: to reduce carbon dioxide emissions. Turning environmental externalities or permits to destroy biodiversity, into an asset is not helping to preserve nature.”
Biodiversity offsetting is for Gerard Bos only a tool: “It is the last choice for companies. First they have to avoid and mitigate negative impacts: that is why we need to integrate natural capital in the economic decisions. The process might not be 100% right, but it is a step towards more transparency and hopefully equity and justice.” What remains to be seen is whether the financial entities that bear a lot of responsibility for the 2008 financial crisis could really help finding a solution to the ongoing deep ecological crisis.

Franca Roiatti
Franca Roiatti works as a journalist for Panorama, an Italian weekly news magazine, writing mainly articles on international affairs. She is the author of two books: The New Colonialism: The Quest for Arable Land, about the land grabbing phenomenon and The Lettuce Revolution: Can the Food System Be Changed? (both in Italian), about alternatives ways to produce and purchase food. She has lectured on subjects of food policies and has participated in several conferences, workshops, and expert panels on landgrabbing, food security, and sustainable food production.