• Fiona Smith

Natural capital: Making nature pay?

Dr Patrick Bresnihan explores the challenges associated with natural capital financing, and questions whether such arrangements can deliver simultaneous economic and environmental returns. Patrick is a member of the IFNC’s Steering Committee and Lecturer in Geography at Trinity College Dublin. Proponents of natural capital accounting offer a compelling argument: by quantifying and valuing natural capital impacts and dependencies, and translating those assessments into systemised accounts, decision-makers in government and the corporate sector will be able to make more informed and, ultimately, sustainable decisions.

But can we assume that reliable and accurate economic information will translate into radical and effective action? It is over a decade since the Stern Review (2006) made the economic argument for climate action. The 700 page report concluded that failure to act would result in costs amounting to 5% of global GDP per year, now and forever. Despite the sound economic warnings, action on climate change has not moved ahead at anything like the pace that is required. So what, if anything, is different about natural capital; why and how will putting nature on the balance sheets make a difference to how governments and corporations make decisions?


​Some proponents of natural capital accounting (including the IFNC) are cautious about the translation of natural capital values into monetary or financial values. There is, however, a strong current within the natural capital movement that believes that monetising and financialising nature (more specifically, the goods and services it provides) is the only way that nature will be valued (see Daily & Ellison 2012). Those that support a move in this direction include the world’s largest conservation organisations, including the International Union for the Conservation of Nature (IUCN) and Worldwide Fund for Nature; the world’s largest financial institutions, including Credit Suisse and Goldman Sachs; national governments, the United Nations, and the European Commission. Together, these powerful political and economic institutions do not just want natural capital accounting to be an indicator of societal value but a means of directly mobilising flows of finance capital. Why is this? Globally, it is estimated that investors must allocate $300 to $400 billion to meet worldwide conservation needs. From this amount, funders only provide approximately $52 billion per year to conservation finance (Huwley et al. 2014). As a result, conservation NGOs like the IUCN are embracing a broader range of funding and financing options. Similarly, fiscally constrained governments in both the Global North and South are eager to seek out new ways of financing conservation and offsetting the costs of environmentally damaging development. Finally, since the 2008 financial crash investors have been looking to diversify their portfolios, including the new opportunities that exist around climate action, infrastructure, and natural capital (Castree & Christophers 2015). The development of debt-based conservation finance has thus taken on new momentum since the global financial crisis, particularly in the EU. It is in this context that we can better understand a recent initiative taken by the European Investment Bank and the European Commission. The Natural Capital Financing Facility (NCFF) was launched in 2015 to provide financing for new projects that come under the broad heading of ‘natural capital’ (categorised as green infrastructure projects, payment for ecosystem services, biodiversity offsets, environmentally sustainable businesses and nature-based solutions for adaptation to climate change). Like similar public iniatives before it, this new facility is designed to demonstrate the financial viability of natural capital projects to potential private investors. Eligible projects must thus be able to demonstrate that they can repay the money provided by the NCFF by identifying clear revenue streams derived from the investment. For example, biodiversity projects that can demonstrate commercial revenue from the sale of biodiversity offsets; or ecological restoration projects that can secure revenue from eco-tourism. The NCFF represents the European Commission’s test-bed to prove that conservation can generate monetary revenue and ultimately pay for itself, thereby attracting private investment into similar projects in the future.  One of the projects that has received a loan (worth €13m) from the NCFF is the Irish Sustainable Forestry Fund (ISFF) [not to be confused with the similarly named Sustainable Irish Foresty Fund]. The ISFF is a London-based investment fund that invests in forestry assets in Ireland with the aim of transforming clear-fell plantations to more sustainable continuous cover forestry. The ISFF also claims to be committed to introducing native broadleaf species into monoculture plantations of Sitka spruce. This all sounds positive. The difficulty arises when the ISFF also claims that these environmental goals are compatible with the continuation of timber production required to generate a financial return that satisfies investors. The ISFF has received a loan from the NCFF on the basis that timber production will be part of sustainable forestry for biodiversity, but the long term financial viability of the project relies on continued timber production for global commodity markets (fast growing species for large-scale production). Either the ISFF will find it hard, if not impossible, to repay the loan to the European Investment Bank, or it will be required to sacrifice wider societal and ecological benefits in order to secure revenue to repay the loan. Despite the promise, self-financing conservation remains like “the legendary Holy Grail . . . elusive” (Ferraro and Kiss, 2002: 1719); globally, 97% of payments for ecosystem services schemes are funded by public money, not private tariffs or financial loans backed by commercial revenues (Fletcher & Breitling 2012). So why continue to pursue this fantasy? Why not just use public money to directly invest in restoring and protecting natural capital? This is where politics comes in to the equation. On the one hand, national governments, including here in Ireland, are desperately seeking to reduce the costs associated with conservation (including regulating those sectors most responsible for depleting our rivers, land, biodiversity and so on); the prospect of conservation paying for itself, or even generating a profit, is an opportunity they are eager to support. On the other, financial institutions and investors are calling on governments, at national and international levels, to reduce the risks associated with their investments in order to kick start a new asset class in nature conservation. The dynamic of shifting financial responsibilities for public goods and services from the state to the private sector is not specific to the complex world of conservation finance. It is familiar to those of us who work in public universities, for example, one of the key sectors that is shaping the development of natural capital projects. But as research in our public universities comes to rely more and more on industry and corporate funding, or even public funding that requires commercial applications, the form and content of this research is also affected. In other words, we are not immune from the political and financial pressures that are pushing the application of the idea of natural capital in certain (monetised and financialised) directions, whether we like it or not.  If we want to protect and conserve nature (from bees to river catchments) because nature provides diverse societal and ecological benefits that are not easily monetised, then we need to argue more strongly for public investment and institutional support. Taking up such positions is not always easy or comfortable but it is necessary if want to protect our environments and avoid nature conservation becoming a new target for financial speculation.

The arguments outlined in this blog are developed in more detail in a report written for the National Economic and Social Council this year: Valuing Nature: Perspectives and Issues. References Castree, N., & Christophers, B. (2015). “Banking Spatially on the Future: Capital Switching, Infrastructure, and the Ecological Fix.” Annals of the Association of American Geographers 105 (2): 1–9. Daily, G. C., & Ellison, K. (2012). The New Economy of Nature: The Quest to Make Conservation Profitable. Island Press. Dempsey, J., & Suarez, D.C. (2016). “Arrested development? The promises and paradoxes of “Selling nature to save it””. Annals of the American Association of Geographers106(3), 653-671. Ferraro, P. J., & Kiss, A. (2002). “Direct Payments to Conserve Biodiversity.” Science 298 (5599): 1718–19. Fletcher, R., & Breitling, J. (2012). “Market Mechanism or Subsidy in Disguise? Governing Payment for Environmental Services in Costa Rica.” Geoforum 43 (3): 402–11. Huwyler, F., et al. (2014). “Making Conservation Finance Investable.” Stanford Social Innovation Review. Sullivan, S. (2013). “Banking Nature? The Spectacular Financialisation of Environmental Conservation.” Antipode 45 (1): 198–217.

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