Can economics save wild nature? And can wild nature save economics?

The concept of monetising biodiversity, generating a ‘net present value’ for a polar bear or a ‘discount rate’ for seasonally dry tropical forest, might fill ecologists and conservationists with dread. Still reeling from the after-effects of the financial crisis, do we really trust the bankers to decide what is a sensible investment in our ecosystems? One man has been brave enough try – Pavan Sukhdev, a leading banker in Deutsche Bank, special advisor to the UN Green Economy Initiative, and study leader of TEEB, The Economics of Ecosystems and Biodiversity, a ground-breaking report due for publication this autumn which aims to do just that.

Pavan Sukhdev addressed a packed audience last night at the SAID Business School, Oxford, at the 5th Oxford Earthwatch Lecture, jointly organised with the think tank SustainAbility. The event was co-chaired Elaine Dorward-King, Global Head of Health, Safety and the Environment at Rio Tinto, a leading mining concern with significant interests in the developing world.

Mr Sukhdev’s key question was to ask whether corporations can keep being profitable, and governments keep growing GDP, without measuring impacts on natural and human capital? Through excellent examples, he demonstrated the need to ‘internalise the externalities’; in other words, counting the cost of natural resources such as fresh water, clean air and an amenable climate which are normally taken for granted. A good case-study is the Rio de la Plata Basin, dubbed the granary of Latin America, which is worth about a trillion dollars per year. Rainfall in the Basin is dependant on water cycling provided by the Amazon Rainforest, but farmers pay nothing for the water supplied by intact rainforest. Pavan Sukhdev described this as the ‘economic invisibility of nature’. He requested that corporations begin to disclose their impacts on natural and human capital on their balance sheets, not just absolve them in a Corporate Social Responsibility report. Elaine Dorward-King, the representative from Rio Tinto, promised to take this on board.

Mr Sukhdev continued to describe the results of valuing natural capital insufficiently. Ecosystems generate wealth indirectly that is not valued but can be large, for example a mangrove forest could generate over $10,000/ha/yr through providing fish and storm protection. The cost of restoring a mangrove forest after it has been cut down is also non-significant. Weighing these two up over 40 years gives the internal rate of return on initial investment to maintain ecosystems, which for mangroves is 40% and for grasslands, 70%. To put this in perspective, your bank account is probably around 1%. For this reason, Mr Sukhdev stated that the economics can not only save wild nature, but wild nature could also save the economy.

Pavan Sukhdev addressed a packed audience in Westminister at a parliamentary event organised by the BES and Institute of Ecology and Environmental Management in October 2009. Find out more about this under ‘Policy Meetings and Events’ on the BES website.