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  • Writer's pictureFiona Smith

The Economics of Biodiversity: key message of Dasgupta Review is need for Natural Capital Accounting

This week saw the publication of The Dasgupta Review - a report on the Economics of Biodiversity. Here we look at the key messages - including that "natural capital should be an essential part of national accounts".

Launched online via The Royal Society with speeches from the UK Prime Minister and Environment Secretary, endorsed by Prince Charles and Sir Richard Attenborough, the 600-page report was commissioned by the UK Treasury, the first time a national finance ministry has authorised a full assessment of the economic importance of nature. (You can watch the launch back by clicking the box above.)

The report's author, Cambridge Professor Partha Dasgupta, stressed the need to transform the way we as a society measure our progress, as the current reliance on GDP is unsustainable. He said: "Introducing natural capital into national accounting systems would be a critical step towards making inclusive wealth our measure of progress."

Here are some of the other headline messages from the Dasgupta Review:

Our economies, livelihoods and well-being all depend on our most precious asset: Nature.

"We are part of Nature, not separate from it. We rely on it for food, water and shelter; to regulate our climate and disease; nutrient cycles and oxygen; and for spiritual fulfilment, recreation and recuperation, for health and well-being. We also use the planet as a sink for our waste products. Nature is an asset, just as produced capital (roads, buildings and factories) and human capital (health, knowledge and skills) are assets.

"Nature is more than an economic good: it has intrinsic worth too. Biodiversity enables Nature to be productive, resilient and adaptable. Just as diversity within a portfolio of financial assets reduces risk and uncertainty, so diversity within a portfolio of natural assets increases Nature’s resilience to shocks."

We have collectively failed to engage with Nature sustainably, to the extent that our demands far exceed its capacity to supply us with the goods and services we all rely on.

"Between 1992 and 2014, produced capital per person doubled, human capital per person increased by about 13% globally; but the stock of natural capital per person declined by nearly 40%. Estimates of our total impact on Nature suggest that we would require 1.6 Earths to maintain the world’s current living standards. The Review calls the imbalance between our demands and Nature’s supply the ‘Impact Inequality’.

Our unsustainable engagement with Nature is endangering the prosperity of current and future generations.

"Biodiversity is declining faster than at any time in human history. COVID-19 and other emerging infectious diseases – of which land-use change and species exploitation are major drivers – could prove to be just the tip of the iceberg if we continue on our current path... It is costly and difficult, if not impossible, to coax an ecosystem back to health once it has tipped into a new state. Low income countries, whose economies are more reliant on Nature’s goods and services, stand to lose the most. Reversing these trends requires action now."

At the heart of the problem lies deep-rooted, widespread institutional failure.

"Nature’s worth to society – the true value of the various goods and services it provides – is not reflected in market prices because much of it is open to all at no monetary charge. Aspects of Nature are mobile; some invisible, many silent. The effects of many of our actions are hard to trace and go unaccounted for. Governments almost everywhere exacerbate the problem by paying people more to exploit Nature than to protect it, and to prioritise unsustainable economic activities.

A conservative estimate of the total cost globally of subsidies that damage Nature is around US$4 to 6 trillion per year.

We need to change how we think, act and measure success.

"Choosing a sustainable path will require transformative change. We need to change our measures of economic success to guide us on a more sustainable path. Food production is the most significant driver of terrestrial biodiversity loss. As the global population grows, the problem of producing sufficient food in a sustainable manner will intensify. Demand for energy is a major contributor to climate change and resulting biodiversity loss so decarbonising our energy systems is necessary... Breaking the links between damaging forms of consumption and production and Nature can be accelerated through policies that change prices and behavioural norms, for example enforcing standards for re-use, recycling and sharing, and aligning environmental objectives along entire global supply chains. Demographic transition will be aided by improving women’s access to finance, information and education, and support for community-based family planning programmes.

Expanding and improving the management of Protected Areas is essential, as are Nature-based Solutions and investment in Natural Capital.

"Multi-functional landscapes and seascapes that provide ecosystem goods and services, and protect and enhance biodiversity, are important. Large-scale and widespread investment in Nature-based Solutions would help us to address biodiversity loss and significantly contribute to climate change mitigation and adaptation, not to mention wider economic benefits, including creating jobs. As part of fiscal stimulus packages in the wake of COVID-19, investment in natural capital has the potential for quick returns. Moreover, natural capital forms the bulk of wealth in low-income countries, and those on low incomes tend to rely more directly on Nature. And so conserving and restoring our natural assets also contributes to alleviating poverty."

Frameworks for natural capital accounting and assessment exist and are at different stages of development, and while significant problems of design and measurement remain, this should not deter governments and businesses from supporting and embracing them.

"Increased investment in physical accounts and valuation would improve the quality of natural capital accounts. Standardisation of data and modelling approaches, and technical support, would make it easier to embed natural capital accounting in national economic accounts, and, above all, use the information to improve decision-making at scale around the world."

We need a financial system that channels financial investments – public and private – towards economic activities that enhance our stock of natural assets and encourage sustainable consumption and production activities.

Governments, central banks, international financial institutions and private financial institutions all have a role to play - although, taking questions, after his presentation Professor Dasgupta stressed that the real driver for change will come from the bottom up, with the public putting pressure on our institutions to bring about real, transformative change.

The Review also points to the need for supra-national institutional arrangements to be established to take account of ecosystems, such as oceans, that are global public goods, the solutions for which transcend national seats of governance.

The 15th Conference of the Parties to the Convention on Biological Diversity (COP15) and the 26th Conference of the Parties to the UN Framework Convention on Climate Change (COP26) provide important opportunities to set a new, ambitious direction for the coming decade, and establish the right environment to deliver on commitments made and the institutional arrangements needed to ensure those commitments are met.

Finally, Professor Dasgupta emphasised the need for better education about Nature and its integral importance to our lives, beginning at primary level and carrying on through secondary and tertiary levels.

You can download the full Economics of Biodiversity report here.

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