There is a growing recognition that the economic analyses that guide public policy and investments around the world fail to account for the value of nature – not just its inherent value, but its role in economic activities that are quantified: from agriculture and fisheries, to energy production, tourism, human health, and much more.
In an effort to fill this gap, extensive work has been done in recent years to document “ecosystem services”, most notably the G8+5-initiated The Economics of Ecosystems and Biodiversity (TEEB) study, led by the former banker and “green economics” expert Pavan Sukhdev.
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On 26 November, while visiting Sweden to accept the Gothenburg Award for Sustainable Development, Sukhdev spoke at a seminar about environmental services co-organized by SEI, the SEI-hosted Swedish International Agricultural Network Initiative (SIANI) and other partners. SEI Executive Director Johan L. Kuylenstierna moderated the discussion.
Sukhdev, author of Corporation 2020, the basis for an initiative to change how corporations deal with natural resources, said ecosystem services underpin all human endeavours, including industrial growth and economic development. Many of these services rely on globally dispersed natural cycles – for example, evaporation from tropical rainforests determining precipitation cycles thousands of miles away.
However, the value that environmental services bring into the products we consume is not reflected in the prices – or in the composition of GDP indicators, Sukhdev said. Conventional economics has no way of accounting for ecosystem services, and the most common question from people who work with business and finance, when confronted with this problem, is: “How do we quantify environmental services and include this measurement in our production costs?”
In a discussion following Sukhdev’s presentation, the economist and panellists from the Stockholm Resilience Centre, the Stockholm International Water Institute and the financial services company Storebrand Group agreed that even if it is difficult to account for ecosystem services, it is crucial to start doing it. Even if the calculations are not strictly precise, the process itself will improve our understanding of where there are externalities and where more impact is created. “Zero externalities is the wrong answer,” Sukhdev stressed.
Madeleine Fogde, senior project manager of SIANI, said Sukhdev’s approach is directly relevant to the farmers in developing countries who are the focus of SIANI’s work.
“Smallholder farmers produce 75% of food consumed in developing countries, and they are totally depending on healthy ecosystems,” she said. “Pavan Sukhdev presents an economic model which can help to make those who exploit and cause degradation of ecosystems pay the right price. It is crucial for all of us to understand that there are no free lunches any longer, and that nature has its price, just like everything else.”
Kuylenstierna, who frequently emphasizes the need to value a healthy environment as a key part of the economy, said the seminar had highlighted an important topic.
“It is high time that environmental costs were better reflected in international trade,” he said. “Businesses and especially large industries should take responsibility and invest in a global life-cycle analysis”.