Can valuing natural capital help deliver the United Nations’ Sustainable Development Goals? Senior environmental economist Chris White explores the link between investing in the world’s ecosystems and a more resilient future.
Imagine a world without poverty, where every country enjoys economic and social growth and the environment is valued and protected by all.
The United Nations’ Sustainable Development Goals (SDGs) call on world leaders, policy makers, the private sector and communities to collectively transform the world over the next fifteen years to help eradicate poverty and inequality and tackle climate change. The vision is an ambitious one and sets detailed economic, social and environmental targets, from ending hunger by increasing investment and enhancing international cooperation (Goal 2), to combating climate change and its impacts through improving education and integrating climate change measures into national policies, strategies and planning (Goal 13).
A new approach to development that brings together social and environmental spheres is needed.
The agenda is meaningful and full of promise. But it will take time, new thinking and money to make it a reality; the Government Spending Watch 2015 Report estimates the SDGs will require at least US$1.5 trillion extra in public funding per year — roughly the same as Australia’s total GDP for 2014. The report, published by Development Finance International (DFI) and Oxfam, recommends a radical overhaul of global tax rules, a doubling of concessional development cooperation and raising US$500 billion in public innovative financing, among other initiatives, to fill the financial gap. The UN’s Addis Ababa Action Agenda, agreed in July 2015, sets out the global commitment to overhauling financing practices across the world to generate investments to tackle these challenges.
Ultimately, achieving the goals and generating investment will rely on understanding the role of the environment and the value of our natural capital and ecosystem services in sustainable development. According to the World Wide Fund for Nature (WWF) Living Planet Report 2014, ‘social and economic sustainability are only possible with a healthy planet; our ecosystems sustain societies that create economies, not the other way around.’
Recognising nature’s value
Natural capital — the world’s stock of natural ecosystems, such as rivers, forests and soil — and the flow of ecosystem services they provide, such as food from plants, flood protection, wood fuel and carbon storage from trees, are vital for human existence; The Economics of Ecosystems and Biodiversity (TEEB) Report (2010) estimates ecosystems and other non‑market goods account for 47–89 per cent of the livelihoods of rural and forest-dwelling poor households.
Despite the significance of our ecosystems, their value is often not recognised in decision making because the market value of their services is not always obvious. Because of this, their value can be lost and our impact on them, such as pollution and habitat loss, remains largely unaccounted for. For these reasons, the world’s ecosystems are rapidly declining; Natural Capital Coalition figures estimate natural capital is being drawn down at a rate of 50 per cent more per year than the Earth can replenish.
The SDG agenda highlights that growing populations, demand for food and water, pollution from industry and urbanisation are likely to continue, with Goals 11 through to 15 setting targets for ecosystem preservation. Target 15.9 specifically calls on all countries to integrate ecosystem and biodiversity values into national and local planning, development processes, poverty reduction strategies and accounts by 2020.
Integrating environmental concerns into decision making
When we look at the SDG goals, and considering the importance of conserving our natural capital for a resilient future, it becomes clear that a new approach to development that brings together social and environmental spheres is needed. Through realising the monetary value of our ecosystems, we’re able to build a strong business case not only for government but for the private sector to invest in the environment to help prevent further degradation and ensure sustainable development.
Natural capital’s evolution from science to national policy
The evolution of valuing natural capital is an interesting story, and one that continues to change and grow.
Initial academic and scientific research into the importance of natural capital prompted the development of the 2005 Millennium Ecosystem Assessment. The global scientific study, which examines ecosystems and their role in human wellbeing, brought the issue into the wider public consciousness, highlighting the importance of conserving our ecosystems in ensuring the future of generations to come.
International organisations, such as the World Bank, the UN and International Finance Corporation (IFC), paid attention to the findings and called on organisations to integrate natural capital into decision making, leading to the IFC’s Environmental and Social Performance Standards (2012). The standards suggested within the report set the benchmark for governments and businesses throughout the world to identify and manage their impacts on ecosystem services.
Qualitative assessments and tools such as the World Resources Institute’s (WRIs) The Corporate Ecosystem Services Review were also developed around this time, allowing organisations to put natural capital theory into practice to identify the significance of ecosystem services and our impacts on them.
Realising nature’s monetary value
However, international organisations soon realised that to more fully integrate natural capital into decision making, the monetary value needs to be clearly recognised. Led by The Economics of Ecosystems and Biodiversity (TEEB), which works to mainstream the values of biodiversity and ecosystem services into decision making at all levels, standards for valuing natural capital in cost benefit analysis, national accounts, financial investment plans, growth projections and GDP were developed. Initiatives such as TEEB’s WAVES global partnership, which brings together governments, the UN and other international bodies to recognise and reflect natural capital in their national accounts, helped bring about this pivotal stage in natural capital evolution.
Private and public sector partnerships: a business case for environmental protection?
The World Forum on Natural Capital, which launched in 2013, was a key event in attracting private sector interest in realising the worth of natural capital across their estate or value chain and accounting for it in their decisions. The development of quantitative valuation techniques and tools to identify the value of natural capital and translate ecosystem services into monetary values also helped bring the concept into the mainstream.
Today we’re seeing growing interest not only from the private sector and national governments, but also at a local level among non-governmental organisations (NGOs), national parks, community groups and local governments.
Now that the value of the environment can be recognised and communicated using a common language, the next step is to look at ways to encourage private and public sector partnership investment to ensure the world’s natural capital is conserved and sustained.
Our experience in helping organisations account for the value of their natural capital demonstrates significant opportunities to form these partnerships. Our work with a British electricity and gas company in quantifying the stock of natural capital on their non-operational sites has helped them develop business cases to secure funding for increasing the environmental and social benefits provided by their capital assets across a number of sites.
We’re now working with them to demonstrate how woodland planting can lead to positive financial returns to the company. We’re also partnering with an international financial institution to improve understanding of the impact of urban development on natural assets and ecosystem services in eastern and southern Africa among city-level managers and planners, and to enhance the ability of national and local governments to make well-informed investment decisions to promote green urban development.
The challenge in encouraging investment in natural capital lies not in the theory of monetising ecosystem services, but in ensuring a sense of transparency and accountability in dealing with the practical issues and clearly identifying who should provide investment. The SDGs provide a good opportunity to achieve this by calling on all sectors and communities to acknowledge their shared responsibility in achieving the common goal of a more resilient world for all by 2030.
Mechanisms such as payments for ecosystems schemes (PES), which aim to secure payments from beneficiaries, such as communities, businesses or governments, to land or natural resource managers in exchange for the provision of ecosystem services, such as clean water, carbon storage and biodiversity, can help facilitate this process.
Sustainable development depends on sustaining the environment. This can only happen by realising its true value. By placing a monetary value on the services natural capital provides, we can incentivise investment in its conservation — helping to mitigate our impacts and bring us closer to achieving the SDGs. This can only happen through shared ownership and responsibility for the ways we live and the long-term impacts we have on the natural capital that sustains us all.
The market value of mangroves
Mangrove swamps are a good example of the value and importance of natural capital in sustainable development. Mangroves filter and improve water quality, hold together sediment, provide carbon storage and a buffer against flooding and coastal erosion, which is especially important to communities at risk of tsunamis. They also provide a nursery ground for multiple species of fish which can support coastal fish populations, as well as the mangrove wood itself providing fuel for local communities.
However, because we can’t buy or sell most of the services they provide, their market value may not be immediately realised. As a result, mangrove swamps have typically been cleared to make way for development projects. Yet the ecosystem services they provide, such as sources of food and fuel for local communities, suggest their value is high.
By examining the services derived from mangroves, and the benefits they provide to communities, their value can be established through a range of different means, incentivising public and private investment to sustain them.