On the 12th April 2016, ZSL hosted a panel discussion on the controversial subject of Natural Capital. We heard from three individuals, chaired by Jonathan Porritt, all of different mindset toward the subject. The debate was powerful and captured new lines of thinking that hadn’t been drawn out in the multitude of previous debates. This blog gives you an overview of the session and the thoughts and questions that arose during the evening.
Measurement shouldn’t be barrier to future management of invaluable ecosystems
We began with Jonathan Baillie of ZSL – a global authority on the status and trends of threatened species. He began by discussing the basis of biodiversity, bringing us up to speed on where Natural Capital sits in the web of life. He introduces Ecosystem Services – the things that provide a benefit to society – and outlines Natural Capital as the elements of nature that directly and indirectly produce value or benefits to people – sometimes seen as a stock.
He also shared a number of assumptions:
‘Natural Capital underpins our entire economic activity; It is essential for economy and wellbeing; Invisible, undervalued and under recognised. Giving nature economic value will raise it on the political and business agenda; If we integrate it in our accounting systems it will ensure its value is monitored and protected.’
The concept of Natural Capital has been around for a while, but here in the UK it was brought into a serious light with the launch of the Millennium Assessment and The Economics of Ecosystems and Biodiversity (TEEB), then System of Environmental-Economic Accounting (SEEA). There is traction and it keeps growing. But how did we get here?
Why are we suddenly in a position to put a cost on nature?
Well, Baillie talks of the ‘exponential’ population growth of human beings since the blip of the Black Death. This saw the beginning of the industrial revolution and the implementation of an economic system. This, in turn, has led to the climate change we see today and predictions for the future. Even without climate change, we are converting Natural Capital at an alarming rate. Cultivated systems alone cover ¼ of earth’s terrestrial surface.
He then takes his talk over some metrics, looking at the most threatened areas across the globe. Despite our acknowledgement of climate change and our attempts to halt it, there is still an extinction rate of over 50% for vertebrate spp. We have lost 1/3 of our forest over the last 100 year time period, with an estimated 1.6million people directly dependent on them. When it comes to our oceans, mangroves support the life cycle of 80% of our global fish populations, whilst corals support 1 in 4, yet it is predicted that 90% of coastal zones will be in development by 2030.
We know there are issues, but species are hard to measure and hard to drive home a valid value of worth. Baillie claims we are getting better at this and it shouldn’t be a barrier to future management of our invaluable ecosystems. One such method that has recently been trialled is evaluating Ecosystem Services from space. The next big factor is getting the accounting right by trying to integrate these numbers into a stock format by cross-referencing how a stock is managed. It may be worth checking Global Forest Watch for an example of how you can present such information to the public.
The aim is to influence
Second up we had Mark Gough of the Natural Capital Coalition.
Gough works to integrate Natural Capital into business. He took the work undertaken by TEEB and turned it into a coalition, with the main aim of making nature visible in the decisions being made by businesses.
Currently, we aren’t. His organisation works to apply a systems approach to transfer information across organisations. The coalition has 200 members now (doubling over the past couple of years), with no government intervention. Mark made the comment that they are “under contract to do something for the common good”.
The current workings of the coalition are to develop a protocol – a standardisation of work and business – that measures and values, not just the impacts, but also the dependencies. 38 key members have developed a key framework which has completed its consultation and is now looking at refinement. In a nutshell, looks into the following:
- Frame (Why?)
- Scope (What?)
- Measure and Value (How?)
- Apply (So what?)
However, there are fundamental points that the coalition highlights and is working toward:
- Biodiversity is much more complicated than other interactions in Natural Capital.
- There is no single number. The aim is to influence.
- Growing a momentum to progress the thought process and consideration of nature.
Within the protocol, they have taken in to account business examples, such as dependency pathways. Gough claims that this does not need to be a complex process – just enough to make them think about it. There are many businesses out there that are keen to pick it up but not be named. These organisations know there is an issue in the supply chain that they want to try to address and much of their communications are about comparing options. This then creates opportunities for future assessments.
Gough closes with the misconception of Natural Capital – ‘it’s about a monetary value’. He claims otherwise; it can be qualitative or quantitative. It is all about decision making. As the stages we are currently at, we need to embed this into the business agenda and make it fit within. He agrees there is no guarantee how it will be used, but focus on the decision-making process needs to happen in order to be a lever for change.
Within the Q&A a question arises with regard to companies needing to return a profit for their shareholders – can biodiversity return a profit? Do we want it to? And if it doesn’t, how will organisations listen?
Gough responds by stating that companies are looking much further beyond the bottom line and that the direct financials aren’t the only impact their actions will have – everything has a knock on effect.
Another Q&A queried the membership, he clarified that they are looking at a big network of 12,000 organisations that should be picking this up in the next few years. He states the coalition needs data and a robust framework on which they can then target governments. “How do we get out the message to normal people? We are a long way from that”, he finishes.
The global markets hierarchy will trump Natural Capital
The final speaker was Mustafa Zaidi of Clarmond. He has more than 17 years of investment experience including within worldwide emerging markets. Zaidi has a very different viewpoint on the given subject of Natural Capital. Ultimately, Natural Capital is accepting the common economic system as it exists. This is the current monetary and energy system, which increases or decreases based on credit and consumption. Natural Capital is going to be joining the credit consumption system. The stock is joining as an asset.
At the present time, our massive growth has been based on fossil fuels. They have been added to the monetary system which is an amplifier. The treasury is open and global with a never-ending credit growth curve. At the moment, in the current system, when asset prices go up, biodiversity goes down.
When credit didn’t grow we went into a crisis. Biodiversity loss continues to diminish with the system as it isn’t classified as a real asset. Nature measurement of currency is energy, and then money – a means of exchange that you are willing to accept. We have applied this to fossil fuels. The current monetary system has an infinite capacity to create credit. You are dividing the finite by the infinite. Using a credit based system as a denominator.
He states that the big challenge we have is that science wants ‘rigorous, replicable and consistent’. But markets will only hear ‘marketable, legal, tradable, standardisable’. Simply another asset.
For every asset, you need a liability. By adding more assets you allow the debt of a country to be reduced and then enable them to add more debt. Nature will eventually be used as a standardised global asset. Powered by credit and consumption. The global markets hierarchy will trump Natural Capital.
Zaidi states that the fundamental problem is we are not questioning the current credit model as long as we count it. Healthcare is a liability. Education is a liability. The monetary system is a liability. Nature will become a liability. If we accept this obligation then we address it as we have current systems.
If we look at Oil and Gas, they have been priced but not valued. There is a difference between a price and a value which is currently challenging the system. If we can see the gap between price and value, this will fundamentally change the way the economic system works.
Zaidi confirms what we all know to be true;
“The scientific community do not speak the language of finance.”
Our intent is good, but he stresses the result will not be. The monetary system is too big for Natural Capital and it will be consumed. A point added here within the Q&A in agreement, noting that banks will be joining a working group to join the gap between science/academia and banks/finance. This poses some momentum in the right direction but involves a huge piece of work.
He was also questioned about whether hearts and minds could change the system. Zaidi responded by stating that we need to look at history for this – Real Estate, for example. This has been transformed to now be legal and tradable. The initial intent of property has been completely lost. The output is always money. Once you start the process it should not come as a surprise that Natural Capital can be used in this way within the ‘sausage factory’, as Zaidi refers to it.
When asked how we can change the economic system, Zaidi states that there have been five systems in the past 100 years, with three energy systems. We are all children of globalisation. The 50s/60s was very managed and closed. We are now (since 1971) a global system. A change will happen again. But sadly nature is not a priority as no one is willing to put money into it as the effects are inter-generational and there is no clear benefit today.
How can you prioritise nature that explains that the benefits are three decades away? This needs to be explained in very simple language. A change will occur before it gets to an extreme system.
The closing words
Jonathan Porritt closes with remarks on the debate, stating that ‘this is very complex stuff here’. If we go down any route, by definition we will destroy how we connect to nature in our innate way. The ‘corporates’ are not always the real baddies in this. Assets and liabilities need more attention. Urgency has been put in the room. Is there hope? People coming together in these large-scale coalitions is a positive start, asking the right questions to get the right answers.