Natural resources are often seen as free inputs that any business can use to produce an output. The only operating cost is how companies assess the monetary value of a natural asset. In this way, natural resources tend to be seen as infinite: there is no clear idea of how overexploitation can destroy surrounding ecosystems.
Many companies today want to avoid harming the environment, but lack the motivation to do so. After all, there is very little empirical link between corporate social performance (CSP) and corporate financial performance (CFP). The researchers also found that while the economic benefits of an unpolluted environment and a stable climate would benefit everyone, the negative costs of pollution and emissions – climate change or other ecological damage – did not affect businesses. individual.
Companies therefore have little incentive to act positively. Which may explain why, faced with the current environmental crisis, many have not done so: environmental policies are often costly and their benefits on the other hand not always easy to quantify.
Thus, to avoid a tragedy of the commons, we must develop a formal method of pricing natural assets according to their role in their ecosystems and their utility value in the medium and long term. Including the price that a company demands from nature in its valuation provides an economic incentive for this company to find more responsible means of production.
Pricing ecosystem services
Nature pricing involves assigning a monetary value to a specific environmental service. For example, researchers have worked to quantify the cost of deforestation in coastal areas where trees help prevent flooding and other environmental hazards. Others have studied the monetary value of the benefits the pangolin brings to its ecosystem to help combat wildlife trafficking. In this way, the researchers sought to put a price tag on each output that companies extract from nature and thus provide them with a financial justification for pursuing a more positive path.
Edward B. Barbier studied how to reshape economic models to account for nature’s contribution to human prosperity and survival. He wanted to include a cost valuation framework in the regulating, provisioning and supporting services that nature provides to us.
Economists, ecologists and other scientists have made substantial progress on this front in recent years and have assessed the contribution to well-being of important ecosystem services by applying environmental valuation methods.
But all of these efforts suffer from a lack of data. This is one of the reasons why the UK Department for Environment, Food and Rural Affairs (DEFRA) maintains a Ecosystem Services Valuation Database (ESVD) which brings together material related to the valuation of natural assets. This project provides greater visibility into the models used and allows for better understanding and deeper analysis.
Ecosystem services by environmental services (biome), in US dollars per hectare per year
Among the early lessons from these explorations, waste treatment, tourism, and protection from extreme events are nature’s most lucrative contributions to human life in terms of US dollar value.
At the very least, it should encourage better protection of our marine and wetland environments. These play a crucial role in our wastewater treatment systems and are worth more than $150,000 per hectare per year.
Admittedly, ecosystem services are not strictly comparable: waste treatment and protection against environmental risks are regulating services, while tourism is a cultural service. Their pricing methodologies therefore vary considerably.
But what about ecosystem services related to climate change? How does nature protect us from global warming and how would we price these services?
Climate change and ecosystem conservation
Climate change results from the combination of two main elements. The Earth’s natural warming process is driven by greenhouse gases which prevent some of the solar radiation from leaving the atmosphere and thus keep the temperature warm enough to sustain life. The difference between the radiation that stays in the atmosphere and what is released is called radiative forcing.
Carbon recovery by country, in US dollars
Source: ESVD data
Human activities increase the concentration of greenhouse gases in the atmosphere. At some point, too much radiation is trapped, increasing radiative forcing and exacerbating climate change.
Carbon dioxide contributes to this radiative forcing. Thus, ecosystems capable of recapturing carbon are essential for mitigating climate change. According to a valuation method based on carbon emissions, for example, the Amazon rainforest of Brazil accounts for about 16% of the total value of ecosystem services involved in carbon sequestration.
Brazil: Main ecosystem services
Protecting the rainforest, fighting climate change
Rainforest conservation means protecting or reproducing the rainforest. Planting trees haphazardly without practicing bio-mimicry is not enough to ensure the longevity of the ecosystem and, therefore, not enough to replicate the carbon recapture strengths of the rainforest.
The Amazon rainforest is home to unique biomes threatened by industrial agriculture and wildlife trafficking. What these activities remove and destroy is not so easily replaced or reproduced. And carbon sequestration is just one of the ecosystem services provided by the rainforest.
This lesson is critical. While efforts should be made to calculate the prices of natural assets and incorporate them into the valuations of our businesses, we must remember that there is no way to value the irreplaceable, or to accurately value without which humanity could not survive.
Businesses may view natural resources as infinite. They are not. But the price of nature really is.
Ophelia Miralles is Alliance Manager at Rectasa non-governmental organization (NGO) that works for the preservation of biodiversity and the fight against wildlife trafficking in Brazil.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, and the opinions expressed do not necessarily reflect the views of the CFA Institute or the author’s employer.
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