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Oct. 28, 2021, 4:25 p.m. EDT

Every whale is worth $2 million? Why it’s time to add the value of nature to GDP

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By Rachel Koning Beals

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“The reason to create a model with both the economy and the environment is that we need to make challenging policy choices, like how to protect land for biodiversity and climate change prevention while also not undermining our ability to produce food,” Johnson said. “Without a model to help navigate these trade-offs, we are essentially flying blind into a risky future.”

Costly reactions

New methods often lead to increased costs of implementation for businesses, which are ultimately passed on to consumers, and that worries some policy makers.

But Michael Gerrard, the founder and faculty director of Columbia University’s Sabin Center for Climate Change Law, says it is often only disasters that bring about the biggest change, which can be a “costly way for society to move forward.” 

For example, Congress enacted the Oil Pollution Act of 1990, passed as an amendment to the Clean Water Act of 1972, to streamline and strengthen the Environmental Protection Agency’s power to prevent spills, but only after the Exxon Valdez catastrophe in 1989. This spring’s ruling in a Dutch court, which ordered Royal Dutch Shell to cut its carbon emissions by a net 45% by 2030 from 2019 levels was a landmark case, Gerrard agreed, but will be challenging and slow to leverage elsewhere.

Rethinking subsidies

The Paulson Institute, working with The Nature Conservancy and Cornell University, has included a call to reform “harmful” subsidies as part of its proposal that details how to fill the funding gap to pay for saving biodiversity.

“If the biodiversity financing gap is considered as a monolithic number — over $700 billion per year — it sounds daunting,” says Henry Paulson, former Treasury Secretary, and his team, in their report. “But if that amount is split into a series of smaller, more manageable categories, closing the gap begins to appear within reach.”

For starters, according to the Organization for Economic Cooperation and Development, governments spend at least $500 billion annually on subsidies or other credits to agricultural producers, forestry and fisheries, as well as the fossil-fuel drillers. Hence, reforming subsidies in sectors that depend on ecosystem services, for instance delinking these payouts from how much farmers produce and attaching them to how much biodiversity farmers save, can provide more money to spend on natural capital preservation and still help producers.

A priority area could be maximizing synergies between the biodiversity and climate agendas — leveraging climate change payments like the global carbon funds that pay farmers for maintaining or restoring natural tree covers that sequester carbon, for instance. Such policies could reverse biodiversity loss while providing climate benefits for the larger community, the World Bank paper, The Economic Case for Nature, argues.

A ‘new deal for nature’

The economic data rethink to favor natural riches faces critical tests right now. 

Two major international conferences this fall have been labeled by some as a point of no return on tackling climate change and biodiversity. One of the key upcoming meetings is seen potentially bringing what some call a “new deal for nature.” At the 15th Conference of the Parties (COP 15) to the U.N. Convention on Biological Diversity, in Kunming, China, in October, some 200 participating parties started a framework for targets to reduce and eventually halt biodiversity loss by 2030 and beyond.

Also see:   Sustainable agriculture is the next way ESG investors can fight climate change

Not much later, November’s U.N. climate meeting in Glasgow may well be the “last, best hope” for the world’s biggest polluters to take action, John Kerry, special U.S. envoy on climate, told a summit of 40 world leaders last Earth Day .

Already, the U.N. has made economic data change a priority. Its Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) warns that humans are exploiting nature far more rapidly than nature can renew itself and the panel has now issued defined standards for the measurement of natural capital.

For the U.S. in particular, the Biden administration has made a pledge to address climate change in a “whole of government” approach. And with more Republicans desiring a mixed bag of environmental solutions, their typically pro-growth stance may increasingly align with saving ecology for the economy’s sake.

Many observers believe serious attention now means it’s not too late.

“There is some hope that economic analysis and policy will rediscover nature before the damage to the services we get from it — and thus to everybody’s standard of living — becomes irreparable,” said Diane Coyle, professor of public policy at the U.K.’s University of Cambridge, and author most recently of “Markets, State, and People: Economics for Public Policy,” in a commentary .

Investing implications

The push for valuing nature hasn’t been confined to think-tanks and university campuses. Wall Street senses its own opportunity.

Also see: Biden matches Obama’s ‘social cost of carbon’ for now — it’s a figure roughly 50 times greater than Trump’s

There has been an uptick in biodiversity-linked exchange-traded funds and other investments that reflect a bet on growing interest for a stake in the next big environmental-investing push. That means thinking beyond investing in solar, wind, offsetting emissions, or making sure a fund is void of industrial polluters, the tack historically followed with most environmental, social and governance (ESG) investments.

S&P Global Ratings ranked biodiversity among the top ESG ideas for 2021. And firms including Fidelity International and Axa Investment Managers are now focusing on the separate-but-related threat of biodiversity loss, they said in outlooks for the year.

Institutional investors managing more than $7 trillion in equity assets consider biodiversity issues to some extent, including Allianz Global Investors, BNP Paribas Asset Management and California Public Employees’ Retirement System, known as Calpers, the nation’s largest public pension. Notably, $7 trillion is a sliver of the $100 trillion in total global assets under management , so clearly, a majority of investors and companies still don’t put a price tag on natural capital, or the cost of losing it. 

Also see: Opinion: If you want to fix climate change, you need to fix this flaw in conventional economic thought

There are broader factors for investment portfolios and retirement savings if pro-growth positions ignore what can’t be replaced. Stock market gains, for one, shouldn’t assume unchecked growth in perpetuity without regard to natural capital and climate change, argues Kathy Baughman McLeod, senior vice president and director for the Adrienne Arsht-Rockefeller Resilience Center.

“There’s an underlying expectation that a retirement portfolio can average 12%-15% returns, all things being equal. But that’s if loss of biodiversity, or pollution, doesn’t have a price on it,” Baughman McLeod said. “You can’t have 12% to 15% and not hurt the environment. We have to bring expectations down — that’s the expectations of investors, that’s the World Bank, others.”

The bill will come due at some point, via higher real estate or insurance costs in retirement, or unexpected risks from extreme weather to the supply chains that power favorite companies.

“We all need to bring return expectations down, because we’re still standing behind shareholder primacy over stakeholder,” Baughman McLeod continued. “What that outlook is not accounting for is the real loss to nature, natural capital and sustainable life. And that’s not a healthy return on investment, either.”

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