How to make money out of the environment - while saving it - Spear's Magazine

How to make money out of the environment – while saving it

To some eyes, the mountainous shrublands that cover the high Andean slopes above Bogotá look like an unproductive wasteland; indeed, that is the meaning of the word páramo, first used by Spanish Conquistadors to describe this wild and remote place. But as I squelch through the wet grasses, breathless with altitude, I am told by Colombian conservationists how valuable this landscape actually is — economically as well as environmentally. Not only does it help to reduce flooding on the plains below, but it also purifies the water used by the people and industry in Bogotá, and it does these jobs much more cheaply than concrete-engineered solutions would cost.

The environment and its services may not be your cup of tea — or indeed glass of fresh Colombian water — but a global revaluation of their economic benefit is under way. Alongside the management of fiscal deficits, banking regulation and packages to stimulate growth, this theme — money growing on trees and in lakes and on hillsides — is now starting to feed into our thinking about the global economy. How best to keep the services provided by nature is a question that is rising in prominence, and fast.

Environment

In sectors such as retail, banking or construction, the dependence of businesses upon nature may seem rather tenuous and remote, but even among these industries 100 per cent of economic activity is in the end founded on nature. Without nature, development and economic growth would cease. After all, how many industries can do without freshwater or oxygen, both of which are recycled and replenished by natural systems? The answer is, of course, none. And there is a myriad of other benefits provided by nature that underpin balance sheets across a range of sectors.

Ecologists and economists have been putting their heads together, for once, to understand the value of different services performed by nature, and some astonishing numbers have emerged. For example, as countries and companies invest billions in technologies to cut emissions of carbon dioxide from fossil fuels, one study estimates that the value of the carbon capture services that could be maintained merely through halving the deforestation rate by 2030 is in the order of $3.7 trillion. The wildlife in the same forests has huge value, too: about 50 per cent of the United States’ annual $640 billion pharmaceutical market is based on the genetic diversity of wild species, many of which were first found in forests. Industrial innovation based on animals, biomimicry, is going strong, too (see box overleaf).

Vulture capitalists

The value of wildlife is also seen in how genetic diversity can be harnessed in ways that present economic opportunities, particularly through the relationships that have evolved between different species. When we disrupt them, we incur a heavy cost. For example, and perhaps surprisingly, wildlife helps limit the spread of disease. Take India’s vultures: these birds were inadvertently wiped out by residues of a veterinary drug left in the dead bodies of cattle and buffalo. During the early Nineties the vulture population plummeted from about 40 million birds to a few tens of thousands — in other words, they went virtually extinct. When the birds were gone, the 12 million tonnes or so of rotting meat that they had been eating each year became food for something else.

The main beneficiaries of this nutritional windfall were wild dogs, whose numbers rocketed by 7 million. More dogs meant more dog bites, and that in turn led to more rabies infections and about 50,000 more dead people than would have been the case had the vultures still been there. It is estimated that between 1993 and 2006 the costs arising from resultant public health problems were in the order of $34 billion.

windfall

The spread of disease has also been linked with the absence of wildlife in more developed countries. West Nile Virus arrived in North America in 1999 and an outbreak in 2002/3 caused 1,100 deaths and widespread misery, and cost an estimated $200 million. Outbreaks were found to be negatively correlated with the diversity of birds: where there were more bird species, on average fewer people contracted the virus. This was because the type of mosquito that spreads the virus prefers to bite birds rather than people, and will go to our feathered friends to feed before it seeks out a meal of human blood.

Wildlife helps to control pests. One study estimated that the annual pest-control value provided by insectivorous birds in a Jamaican coffee plantation was $310 per hectare, keeping the price of your espresso down, while the annual per hectare value added from birds controlling pests in timber-producing forests has been put at $1,500. Great tits predating caterpillars in a Dutch orchard were found to improve the apple harvest by 50 per cent.

Pollination underpins about $1 trillion-worth of agricultural sales and the natural actions of pollinating creatures such as bees have been valued at $190 billion per year. If anything reinforces the absurdity of killing off bees with overuse of pesticides, it is the annual spring scene in parts of south-western China of fruit farmers climbing trees with feather dusters to move pollen between blossoms. Bees do this free of charge, while farmers who have to do this are distracted from other profitable activities. Investors are grateful, if unknowingly, to the birds and the bees.

A sea change

Healthy marine ecosystems generate massive economic benefit. The GDP value derived from marine fish stocks and the industries associated with them are about $274 billion per year — and this could be worth another $50 billion if the fish were managed more intelligently. (Schooled, you might say.)

The same photosynthetic plankton that comprise the solar-powered base of marine food webs are replenishing oxygen in the atmosphere. At least half the life-sustaining gas you just sucked in with your last breath was put there by plankton drifting in the sunlit layer at the surface of the seas. Those same trillions of photosynthetic micro-organisms also help to seed rain clouds and each year capture about a third of the carbon dioxide released from the combustion of fossil fuels. The value of these and other ocean-based services have been estimated as worth about $21 trillion per year (and that is at 1998 values).

windfall

For individual countries, the services provided by the marine environment can underpin a considerable proportion of their GDP. One study found that at least a quarter of the national income of Belize is reliant on its coral reef and coastal mangrove forests, which among other things underpin much of the country’s tourism, help to replenish fish stocks and provide an insurance policy protecting property (including your holiday home?) from storms.

Feeling the burn

So what does this all add up to? In other words, how much will it cost us as we continue to burn through the environment’s benefits? The number is not small: Robert Costanza’s famous study of the services provided by nature each year concluded that they are worth about double global GDP. Last year, that would have been $144 trillion. It’s not a bill we can foot.

We’re giving it a good go, though. The loss of natural habitats, over-exploitation of valuable resources, such as fish and timber trees, pollution, acidification of the oceans (caused by rising atmospheric carbon dioxide) and climate change are all taking a toll on the ability of natural systems to function properly, and are leading to a mass extinction of animals and plants at a scale and pace not seen on Earth for tens of millions of years. Economically vital resources, such as fish stocks, soils and freshwater, are being depleted in ways that are creating major risks. And the risks are not just environmental: they are economic and financial, too.

Money

When it comes to how much this degradation of nature is costing the global economy annually, a 2008 study by Trucost estimated that it was then about $6.6 trillion per year (11 per cent of world GDP) and on present trends will reach $28 trillion by 2050. By contrast, a study from a group of leading conservationists published in 2012 suggested that to meet global goals that would avert a mass extinction of species would cost around $76 billion per year — or 0.12 per cent of annual world GDP.

Planet-scale Ponzi scheme

It is of course possible to argue about the numbers — and people do — but the truth that sits above the detail is that intact and functioning nature has a vast economic value, and that this value is for the most part invisible in economics, as HRH the Prince of Wales has observed on page 37. This is one reason why nature’s capacity to provide these and other services is in overall decline, and why the modest sums needed to protect and sustain them are so difficult to secure. In an attempt to correct this rather fundamental problem, some leading thinkers advance the idea of natural capital.

Natural assets, in the form of the stock of forests, wetlands, wild fish, grasslands, genetic diversity and other nature-based systems, are comparable to financial capital in the sense that they can deliver a flow of dividends. The returns gained from natural capital include pollination services, freshwater replenishment, the renewal of soil fertility, fish, carbon capture and storage, flood risk reduction and the natural diversity. To this extent the parallel between natural and financial capital holds up well. But when it comes to how we judge success and rational behaviour in relation to how we husband these forms of capital, a stark contrast emerges.

When we run down natural assets, we tend to count the resulting economic benefits as a flow, when in fact it is the stock of capital that is being liquidated. While this is generally regarded as perfectly normal and the price of progress, when such logic is applied in the world of finance with capital assets liquidated and counted as a flow, outrage and law enforcement follow.

Full

Bernie Madoff has a lesson here for us. His fraud was based on convincing investors to place their capital in funds that supposedly earned good returns on investments while protecting the capital. But Madoff wasn’t making sensible investments: he was using capital he’d attracted to pay ‘interest’ to earlier investors. The scheme was doomed to collapse and when the deception was revealed it became clear that investors had lost billions. Madoff was sentenced to 150 years in jail.

The planet-scale Ponzi that squanders natural capital is regarded rather differently and presented in corporate accounts and national GDP figures as ‘profit’ and ‘growth’, when in fact it is in the end no more sustainable than Madoff’s scheme. Instead of attracting prison sentences, those most successful in this planetary Ponzi scheme are more often awarded bonuses.

Green shoots of recovery

Fortunately, some of the fundamental errors that societies have made in their valuation of nature are being corrected. It is still early days, but progress can be seen in initiatives being taken forward by a growing number of countries, cities and companies, demonstrating through practical action how the economic value of nature can be not only quantified, but also translated into steps that capture those values in tangible economic benefits.

In the mountains above Bogotá I saw how local and national authorities, the Nature Conservancy and Bavaria (a major beer producer) are co-operating in a project that one day might lead to the protection and restoration of the upland woodlands and shrubby grasslands that help to capture and store water. These vast natural sponges have become highly degraded, mainly by farming. If they could be restored, then considerable economic value might be gained in the fast-growing built-up areas below.

New York City has invested in nature to secure its water needs, in part through the management of ‘green infrastructure’ in the river catchments in the Croton, Catskill and Delaware hills. These areas, covering 2,000 square miles of mainly wooded country, supply high-quality drinking water to nearly 9 million people. But maintaining the land so that water is stored and then released in good condition is a complex affair, not least because 2,000 different owners control the land where New York City’s water first falls as rain. A solution was found through bodies set up in 1993 and 1996 to promote water-friendly farming and forestry practices.

Financial incentives were introduced to encourage the voluntary adoption of practices that would not only help support livelihoods but also maintain good-quality water supplies. With money from the New York state authorities and US Forestry Service, 95 per cent of landowners joined a plan that has protected the city’s water at a fraction of the cost of the alternative.

If artificial filtration had been installed to strip nutrients and sediments from the water coming from the hills, it would have cost the city $6-8 billion, and such equipment would also cost up to $500 million per year to operate. By investing instead in best-practice farming and forestry, the cost to the city was about $1 billion. This difference was in turn seen in New Yorkers’ water bills, which went up by about 9 per cent, rather than doubling — as was expected had a new hi-tech water treatment plant been built.

There are other benefits too. Much of the catchment is open to, among other things, walking, cross-country skiing and fishing — all of which add further economic value through the enhanced health and wellbeing of people. And there are benefits for the conservation of wildlife, with woodlands and farms better able to maintain native plants and animals.

Reaping with the fishes

At sea, too, effective steps are being taken to rebuild natural capital. One example is the halibut fishery in the US North Pacific, where a reform programme that cost the equivalent of about 3 per cent of the annual revenue earned by the industry was spent in ways that increased its productivity. Income from catching this valuable species increased from around $50 million a year to $245 million — an improvement of 390 per cent, by any standard a good return on investment. The small businesses that rely on the fish are as a result more secure and more profitable.

In New Zealand $25 million was spent on better fisheries management and the national value of fisheries increased from $1.6 billion to $2.3 billion — an increase of 44 per cent. Norway spent $90 million reforming its fisheries, including putting in place a ban on discarding any fish that had been caught. This helped change fishing practices, stocks recovered and the value of the annual catch went from $347 million to $546 million. The benefits are also reflected in businesses and jobs based on fishing, including boat building and fish processing, being more secure.

Analysis of the potential economic gains that could be derived from better-managed fish stocks suggests that there are many such opportunities. For instance, getting the disastrously managed North-East Atlantic bluefin tuna fishery into better shape could lead to gains of up to $510 million per year.

In developing countries there is cause for optimism. Namibia has dramatically reduced illegal fishing and enabled stocks to recover. Catches have increased threefold; so has the benefit to Namibia’s development, with the value of fishing to the national economy going up from $98 million to $372 million per year. There are of course considerable social benefits in the protection of jobs and incomes through ensuring that the businesses dependent on fishing remain secure.

The ‘N’ word

One environmental challenge that rarely gets debated in the mainstream is the problem of nitrogen enrichment. It has been calculated that nitrogen pollution (caused mainly by the escape of agricultural fertilisers into water bodies) is across the European Union causing social costs (including through impacts on human health) of at least €70 billion per year. Steps can be taken at farm level to reduce this nutrient pollution, but preventing its escape on the scale necessary to protect the ecosystems it affects is at present beyond the scope of how we farm. Natural systems can be enhanced to help.

When nutrients including nitrogen fertiliser run from fields to streams to rivers and arrive at the sea via estuaries, it can cause explosions in populations of single-celled plants. The water turns green, oxygen levels plummet and fish and other animals can die. But humble oysters — those things that most often come on ice next to wedges of lemon — can help clear the water by eating the microscopic algae, and in the process strip nitrogen from the water. The tiny plants are digested and then the oysters’ faeces ejected on to the seabed. Bacteria get to work on decomposing this, turning the nitrogen back into gas, which then harmlessly gets back into the atmosphere.

While a little oyster may not seem up to the task of cleaning an ocean, bear in mind that an average-sized one is every day filtering up to 200 litres of water. With this kind of pumping capacity, a one-hectare patch of oyster reef (assuming a low density of about fifteen average-sized animals per square metre, and fifteen juveniles) will each day filter the equivalent of twenty Olympic-sized swimming pools. No wonder that across the USA between 2001 and 2011 more than 100 oyster reef restoration projects were started.

The nature crunch

These and other examples demonstrate how it is possible to at least partially end the economic invisibility of nature. We need to go further, though, and to alter some deep misconceptions, including in how we have grown used to seeing nature as mainly a supplier of resources that have a direct and immediate market value. Recent research demonstrates how it would be rational to see nature as the supplier of essential services, for example as a provider of insurance, a controller of disease, a waste recycler, an essential aspect of health provision, a water utility, a controller of pests, a massive carbon capture and storage system and the ultimate converter of solar energy.

Taking effective action will also require us to challenge an even deeper misconception. This is the one that leads many people, especially in political debate in Britain and America, to regard looking after nature as a drag on economic development. A mounting body of evidence, by contrast, shows how the opposite is in fact the case, and that sustaining natural systems is not about protecting the environment at all: it is about keeping the economy going.

This point was recently underlined in a report published by the United Nations Environment Programme’s Finance Initiative. This piece of work looked into the relationship between how countries managed their natural capital and their ability to meet sovereign debt obligations. It found that ‘loss of soils, forests and fisheries, as well as rising resource costs, are likely to become increasingly important to a nation’s economic health, and may affect its ability to repay or refinance sovereign debt’. The report went on to suggest that factoring the way countries manage natural assets into sovereign bond ratings would be a logical step in helping investors in making decisions, but also would encourage countries issuing sovereign debt to manage their natural wealth more sustainably, in order to attract investment over the medium and long term.

This could be one step among several that would help to re-price risk in ways that reflect real-world circumstances, while at the same time encouraging policies leading toward longer-term resilience. Other national policies that would drive in a similar direction include those that would help to internalise the presently hidden costs of damage to natural systems into economic transactions. One important measure (that has been talked about for years) is a clear and long-term price on carbon, delivered through either trading schemes or, more effectively, via carbon taxes.

Even in the absence of this re-priced risk, some leading companies (including Unilever, Puma, Skanska and Nestlé) are changing their strategies to match a revised (and more realistic) view of the world in which they operate. That reality is especially stark for those dependent on agriculture, for without rain, healthy soils, pollinators and a stable climate, the supply chains that start with nature cannot continue to supply companies reliably with what they need to feed the markets upon which their profits are based.

For most companies, their strategic response to the nature crunch begins with understanding what dependencies they have on natural systems, measuring their impact on those and then taking steps to ensure those systems continue to supply what the company needs. This is in part about gathering and presenting information, and looking at how best to do this is the business of a number of recent initiatives. One that has a broad membership and real momentum has been convened under the banner of an initiative called the Economics of Ecosystems and Biodiversity (TEEB). It is called, cumbersomely, the TEEB for Business Coalition and aims to garner consensus on the best tools available for companies to improve their knowledge of natural capital.

This and other efforts aimed at achieving a better alignment between ecosystems and economics signal to many that business as usual is coming to an end. We’ve started to look at our global balance sheet, with its rivers and lakes and oceans of red ink, and have decided that to stay in the black, we need to maintain the green.

Tony Juniper’s recent book, What Has Nature Ever Done for Us?, was a Sunday Times bestseller

tonyjuniper.com

All illustrations by Femke de Jong

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