Taking nature into account: the time for a new type of capital
Professor Sir Partha Dasgupta spoke to ICAEW about its historic review of the economics of biodiversity, its hopes for the future and what it means for members.
“I think the easiest way to sum up our current situation is to say that we need 1.6 Earths to meet the claims we are making about the current system,” says Sir Partha Dasgupta explaining the decline in biodiversity that plagues all around us.
In 2019, the British Treasury commissioned Dasgupta, who is Frank Ramsey Emeritus Professor of Economics at the University of Cambridge, to produce the world’s first major study on the effects of this decline on the world’s economies.
Environmentalists have been warning for decades about the problem and “study after study has shown that biodiversity is declining at a faster rate than ever in human history with extinction rates approximately 100 to 1000 times greater. higher than the baseline and increasing, ”says one of the Dasgupta team who worked on the review.
But this is the first comprehensive multidisciplinary economic assessment of the risk of failing to protect our natural resources. The journal, which is over 600 pages, tries to emphasize that nature cannot be reduced to mere financial value, but stresses the need for what Dasgupta calls, “an economic grammar for all societies, not just for the West, or Africa or Asia, because I think that economics is a universal language. “
Indeed, this universality means that for decades almost all decisions – in business and politics – are based on classic business cases. Major policy decisions, for example, will use rising GDP as a measure of success, but “GDP does not measure the depreciation in nature that goes with growing national income.
“Hence the need for a review,” he said resolutely. ‘The economics of biodiversityWas published in February and since then Dasgupta has had what he considers to be many fruitful discussions. “But,” he warns, “I’m looking at a very self-selected group. It is not necessarily representative. “
Football and food security
Ultimately, he wants the post to reach a much larger audience. “The review is really written for the citizen, and I am not talking about the citizens of this country, I mean the citizens of the whole world. We therefore need a coalition of citizens, the private sector, the state and civil society, such as NGOs.
“The voice of citizens is extremely important – we underestimate the power of the citizen. We have seen what happened to the outrage of football fans in England over the proposal to have a Super League. And the whole idea, funded by huge sums of money, was crushed in two to three days. There has been this outrage because people care. “
It also gives the less fleeting example of food security. Because “we care about our health in the West, we insist on disclosing what we eat.
“Things have changed dramatically in my life as to what food companies are supposed to disclose. This is a good thing. But somehow, for reasons that I think we can understand, we don’t have that sense of urgency about nature. When I say we, I mean the citizen, even those who have free time, and who are particularly involved in civil society.
One of the main reasons for this lack of urgency is that, as the review points out, much of nature is “open to all without financial charges”.
“Further,” he adds, “these characteristics mean that the effects of many of our actions on ourselves and on others – including our descendants – are difficult to trace and are not taken into account, giving generalized ‘externalities’. “
It is also more difficult to rally a coalition of citizens, businesses and politicians to protect biodiversity than it is to stop the climate crisis. “Managing the climate is much easier as an economy than losing biodiversity,” says Dasgupta, “because there is one simple metric – namely carbon and carbon emissions. We don’t have that in the context of biodiversity loss. What you have are ecosystems and the wide variety of goods and services they produce, of which we all participate.
“And one of the reasons we’ve been able to bring together private sector interests in climate change is precisely because there was an easy metric they could coordinate on.”
So he says that while he is hopeful to make progress, it will take time. “I don’t expect to see in my lifetime the kind of change that I would like to see happen, even though it was my generation that was this central cause of this huge disparity between what humanity takes out of the system. and the ability of the earth system to meet this demand on a sustainable basis. “
Make things change
So what can we do about it? Dasgupta likes to point out two “transformational” changes that are relatively easy to discuss but much more difficult to achieve. First, he says we should remove the “subsidies we pay to exploit nature.” Currently, it is in the order of four to six trillion US dollars per year, or about four to five percent of global GDP.
“Take them out and it will make nature more expensive. And rightly so.
Second, we need to make people pay for biomes that are “totally free”. He talks about our use of the high seas for fishing and transportation, and of the atmosphere as a sink for pollutants, but since no one owns them, there is no one to “collect the rent” – a rent that we do. would all pay if we had to. .
Environmentalists call these benefits we derive from nature – ranging from minerals extracted from the soil to an ecosystem’s ability to degrade and transform biological waste – “ecosystem services” (this article covers the concept in more depth). And, says Dasgupta, there are many countries, such as China and Costa Rica, that successfully run payment for ecosystem services programs, where farmers are paid for the “ services ” their land has – and l ecosystem it contains – provide to neighbors. Or how the inhabitants of at-risk ecosystems in parts of Africa are paid to protect the wildlife around them.
This therefore means that policies to protect biodiversity should not be seen as the richest economies in the world hampering development in the poorest regions of the world. “There are two main points that should convince you that reducing poverty and protecting nature – in the broad sense – go hand in hand,” says Dasgupta.
“Because the world’s poorest depend on nature – proportionately – more than we do. And second, they’re sitting in the middle of a huge amount of biodiversity, because the poorest in the world are in the tropics, where biodiversity is the richest. “
International cooperation and accounting
Protecting biodiversity in this way will require enormous amounts of international coordination, but Dasgupta remains fearless. “You are asking me the question that really excites me the most and which is unlikely to have an influence in the international discussions of the COP26, or of the COP15, which could be necessary at the international level, to achieve this. consistently. . “
At the end of World War II, he says, revolutionary steps were taken by the international community. He quotes the Marshall Plan, the World Bank, the International Monetary Fund, the World Health Organization and “so many other places where we have cooperated.
“What we need is at least one international institution that will be responsible and empowered to monitor, manage and bill [ecosystem services]. And the rents we can collect will be huge. Be used for whatever we deem desirable, one of which might be to subsidize countries that are home to tropical forests. “
He also affirms that chartered accountants have a key role to play: “Particular reference to chartered accountants. The accounting methods that we currently have in place do not correspond at all to what we are discussing, because natural capital does not even enter the national accounts of national economies.
“We estimate the GDP but the GDP does not measure the depreciation in nature that goes with the growth of national income. The accounting system must therefore recognize that nature is an asset. And natural capital in its broad forms, the hundreds and millions and trillions of forms that it appears, must be taken into account.
He says that when working on a decision involving nature, accountants should view nature – and therefore the “services” it provides – as an asset. “Even though some of these items will be priceless because we don’t have a price – it’s zero – recognizing that you are actually using it in quantitative terms, is a big improvement because you recognize what you are. do to the system. “
He sums it up with a call to arms: “So accountants don’t need to rewrite the accounts. What they need to do is expand the vocabulary with which they do the accounting. “
Watch this short video to see Professor Dasgupta discussing these topics