Put a value on nature Pavan Sukhdev

I’m here to talk to you about the

economic invisibility of nature the bad

news is that mother nature’s back office

isn’t quite working yet so those

invoices don’t get issued but we need to

do something about this problem I began

my life as as a markets professional and

continued to take an interest but most

of my recent effort has been looking at

the value of what comes to human beings

from nature and which doesn’t get priced

by markets a project called teeb was

started in 2007 and it was launched by a

group of environment ministers of the g8

+5 and their basic inspiration was a

stern review of Lord Stern they asked

himself the question if economics could

make such a convincing case for early

action on climate change well why can’t

the same be done for conservation so I

found an equivalent case be made for

nature and the answer is yeah it can but

it’s not that straightforward

biodiversity the living fabric of this

planet is not a gas it exists in many

layers ecosystem species and genes

across many scales international

national local community and doing for

nature what Lord Stern and esteemed it

for climate is not that easy and yet we

began we began the project with an

interim report which quickly pulled

together a lot of information that had

been collected on the subject by many

many researchers and amongst our

compiled the results was the startling

revelation that in fact we were losing

natural capital the benefits that flow

from nature to us we were losing it at

an extraordinary rate in fact of the

order of two to four trillion dollars

worth of natural capital this came out

in 2008 which was of course around the

time that the banking crisis had shown

that we had lost financial capital of

the order of two and a half trillion

dollars so this was comparable in size

to that kind of loss we then have gone

on since to present for international

community for Gov

for local governments and for businesses

and for people for you and me

a whole slew of reports which were

presented at the UN last year which

addressed the economic invisibility of

nature and describe what can be done to

solve it what is this about a picture

that you’re familiar with the Amazon

rainforest

it’s a massive store of carbon it’s an

amazing store of biodiversity but what

people don’t really know is this also

it’s a rain factory because the

northeastern trade winds as they go over

the Amazonas effectively gather in the

water vapor something like 20 billion

tons per day of water vapor is sucked up

by the northeastern trade winds and

eventually precipitates in the form of

rain across the la plata basin this

rainfall cycle this rainfall factory

effectively feeds an agricultural

economy of the order of two hundred and

forty billion dollars worth in Latin

America but the question arises ok so

how much do we require Paraguay

Argentina and indeed the state of mato

grosso in Brazil pay for that

vital input to that economy to the state

of Amazonas which produces that rainfall

and the answer is zilch

exactly zero that’s the economic

invisibility of nature that can’t keep

going on because economic incentives and

disincentives are very powerful

economics has become the currency of

policy and unless we address this

invisibility we are going to get the

results that we are seeing which is a

gradual degradation and loss of this

valuable natural asset it’s not just

about the Amazonas or indeed about

rainforest no matter what level you look

at whether it’s at the ecosystem level

or at the species level or the genetic

level we see the same problem again and

again so rainfall cycle and water

regulation by rainforest at an ecosystem

level at the species level it’s been

estimated that insect based pollination

bees pollinating fruit and so on is

something like 190 billion dollars worth

that’s something like an 8% of the total

agriculture output globally completely

passes below the radar screen when did a

bee actually ever give you an invoice or

for that matter if you look at the

genetic level

60% of medicines were prospective were

found first as

in a rainforest or a reef once again

most of that doesn’t get paid and that

brings me to another aspect of this

which is to whom should this get paid

that genetic material probably belonged

if it could belong to anyone to a local

community of poor people who parted with

the knowledge that helped the

researchers to find the molecule which

then became the medicine they were the

ones that didn’t get paid and if you

look at the species level you saw about

fish today the depletion of ocean

fisheries is so significant that

effectively it is affecting the ability

of the poor the artisanal fisher folk

and those who fish for their own

livelihoods to feed their families

something like a billion people depend

on fish the quantity of fish in the

oceans a billion people depend on fish

for their main source for animal protein

and at this rate at which we are losing

fish it is a human problem of enormous

dimensions a health problem of a kind

that we haven’t seen before and finally

at the ecosystem level whether it’s

flood prevention or drought control

provided by the forests or whether it is

the ability of poor farmers to go out

and gather leaf litter for their cattle

and goats or whether it’s the ability of

their wives to go in and collect fuel

wood from the forest it is actually the

poor would depend most on these

ecosystem services we did estimates in

our in our study that for countries like

Brazil India and Indonesia

even though ecosystem services these

benefits that flow from nature’s to

humanity for free they’re not very big

in percentage terms of GDP two four

eight ten fifteen percent but in these

countries if we measure how much they’re

worth to the poor the answers are more

like forty five percent seventy five

percent ninety percent that’s the

difference because these are important

benefits for the poor and you can’t

really have a proper model for

development if at the same time you are

destroying or allowing the degradation

of the very asset the most important

asset which is your development asset

that is ecological infrastructure how

bad can things get well here’s a picture

of something called the mean species

abundance it’s basically a measure of

how many tigers toad sticks or whatever

on average of biomass of various species

around the green represents the

percentage if you dark green it’s like

to 100% if it’s yellow it’s 40 to 60%

and these are percentages versus the

original state so to speak the

pre-industrial area 1750 now I’m going

to show you how business-as-usual

will affect this and just watch the

change in colors in India China Europe

sub-saharan Africa as we move on and

consume global biomass at a rate which

is actually not going to be able to

sustain us see that again the only

places that remain green and that’s not

good news is in fact places like the

Gobi Desert

like the tundra and like Sahara or that

doesn’t help because there were very few

species and volume of biomass there in

the first place this is the challenge

the reason this is happening boils down

in my mind to one basic problem which is

our inability to perceive the difference

between public benefits and private

profits we tend to constantly ignore

public wealth simply because it is in

the common wealth it’s it’s common Goods

and here’s an example from Thailand

where we found that because the value of

a mangrove is not that much it’s about

600 olives over the life of nine years

that this has been measured compared to

its value as a shrimp farm which is some

more like nine thousand six hundred

dollars there has been a gradual trend

to deplete the mangroves and convert

them to shrimp farms but of course if

you look at what exactly those profits

are almost 8,000 of those dollars are in

fact subsidies so you compare the two

sides of the coin and you find that it’s

more like twelve hundred versus six

hundred that’s not that hot but on the

other hand if you start measuring how

much would it actually cost to restore

the land of this shrimp farm back to

productive use once salt deposition and

chemical deposition has actually had its

effects their answer is more like twelve

thousand dollars of cost and if you see

the benefits of the mangrove in terms of

the storm protection and cyclone

protection that you get and in terms of

the fisheries the nurse fish in

nurseries that provide fish for the poor

that answer is more like eleven thousand

dollars so now look at the different

lens if you look at the lens of public

wealth as against the lens of private

profits you get a completely different

answer which is clearly conservation

makes more sense and not destruction

so is this just a story from south

tallinn sorry this is a global story and

here’s what the same calculation looks

like which was done recently and well I

see recency over the last ten years by a

group called true cost and they

calculated for the top 3000 corporations

what are the externalities in other

words what are the costs of doing

business as usual this is not a legal

stuff this is basically business as

usual which causes climate changing

emissions which have an economic cost

it causes pollutants being issued which

have an economic cost health cost and so

on use of fresh water

if you drill water to make coke near in

the village farm that’s not illegal but

yes it costs the community can we stop

this and how I think the first point to

make is that we need to recognize

natural capital basically the stuff of

life is natural capital and we need to

recognize that and build that into our

systems when we measure GDP as a measure

of economic performance at the national

level we don’t include our biggest asset

at the country level when we measure

corporate performances we don’t include

our impacts on nature and on what our

business cost society that has to stop

in fact this was what really inspired my

interest in this space I began a project

way back called the green accounting

project that was in the in early 2000

when India was going gung-ho about GDP

growth as the means forward looking at

China with its stellar growths of eight

nine ten percent and wondering why can’t

we do the same and a few friends of mine

and I decided this doesn’t make sense

this is gonna create more costs to

society and more losses so we decided to

do a massive set of calculations and

started producing green accounts for

India and it’s States that’s how my

interest began and went to the team

project calculating this at the national

level is one thing and it has begun and

the World Bank has acknowledged this and

they’ve started a project called waves

wealth accounting and valuation of

ecosystem services but calculating this

at the next level that means at the SEC

that the business sector level is

important and actually we’ve done this

with the tea project we’ve done this for

a very difficult case which was for

deforestation in China this is important

because in China in 1997 the Yellow

River actually went dry for nine months

causing severe loss of agricultural

output and pain and loss to society just

a year later the Yangtze flooded causing

something like 5500 deaths so clearly

there was a problem with deforestation

it was associated largely with the

construction

industry and the Chinese government

responded sensibly and placed a ban on

felling but retrospective on 40 years

shows that if we had accounted for these

costs the costs of loss of topsoil the

costs of loss of waterways the lost

productivity the loss to local

communities as a result of all these

factors desertification and so on those

costs are almost twice as much as the

market price of timber so in fact the

price of timber in the Beijing

marketplace ought to have been three

times what it was had it reflected the

true pain and the cost to the society

within China of course after the event

one can be wise the way to do this is to

do it on a company basis to take

leadership forward and to do it for as

many important sectors which have a cost

and to disclose these answers someone

wants to ask me who is better or worse

is it Unilever as a TNG when it comes to

their impact on rainforests in Indonesia

and I couldn’t answer because neither of

these companies good that they are and

professionals or they are do not

calculate or disclose their

externalities but if we look at

companies like kuma Yorkin sites there

Cioran chairman once challenged me at a

function saying that he’s going to

implement my project before I finish it

well I think we kind of did it at the

same time but he’s done it he’s

basically worked out the cost to Puma

Puma has 2.7 billion dollars of turnover

300 million dollars of profits 200

million dollars after-tax 94 million

dollars of externalities cost to

business now that’s not a happy

situation for them but they have the

confidence and the courage to come

forward and say here’s what we are

measuring we are measuring it because we

know that you cannot manage what you do

not measure that’s an example I think

for us to look at and for us to draw

comfort from if more companies did this

and if more sectors engage this has

sectors

you could have analysts business

analysts and you could have people like

us and consumers and NGOs actually look

and compare the social performance of

companies today we can’t yet do that but

I think the path is laid out this can be

done and I’m delighted that the

Institute of Chartered Accountants in

the UK has already set up a coalition to

do this an international coalition the