Pricing environmental assets: Smart idea, or fatally flawed?

Pricing environmental assets: Smart idea, or fatally flawed?

The recent launch of the Natural Capital Declaration at the Rio+20 conference last week was the first time that business, finance, and governments came together to place a monetary value on natural resources and the environment. Thirty-nine financial institutions signed on to the declaration, including banks, investment funds and insurance companies.

Yet  not all stakeholders are enthusiastic about the declaration. BankTrack, a respected Netherlands-based nongovernmental organization that engages with the financial sector to encourage sound environmental and social practices, has publicly objected to the declaration's monetization of the environment.

The declaration is a voluntary initiative. Signatories aspire to build understanding and support the development of mechanisms to integrate natural capital -- which they define as Earth's natural assets and ecosystem services—into institutions' financial decisionmaking. At present, "no methodology yet exists to adequately report or account for Natural Capital in the global financial system," the declaration states.

The signatories are emphatic, however, in calling on governments to require corporations to report on their dependence and impact on natural capital. They also call for regulatory action to "discourage business from eroding Natural Capital, while at the same time offering incentives to companies that integrate, value and account for Natural Capital in their business model."

By endorsing the Declaration, the signatories seek to "demonstrate our commitment to the eventual integration of Natural Capital considerations into private sector reporting, accounting and decision-making, with standardization of measurement and disclosure of Natural Capital use by the private sector."

Achim Steiner, Executive Director of the United Nations Environment Program (UNEP), stated, "Factoring natural capital into the bottom line is about bringing the real wealth of the planet from the invisible into the visible spectrum in order to tip the balance from degradation towards sustainable management for communities, businesses, and countries."

Photo of tree growing out of coins provided by Floris Slooff via Shutterstock.

Signatories to the declaration include Calvert Investments, PaxWorld Management, and Zevin Asset Management. Supporters include major sustainable investment forums, as well as the Carbon Disclosure Project (CDP) and the Global Reporting Initiative (GRI).

The first wave of signatories from the banking sector, however, does not include a single institution headquartered in the US.

Underscoring the urgency of ending the externalization of environmental costs, PaxWorld CEO Joe Keefe states, "Over the next decades, it will be necessary for market capitalism to undergo a Sustainability Revolution equal in significance to the Industrial Revolution that ushered in the modern period. For this to happen, our financial system must dramatically change, and I hope the Natural Capital Declaration can be a catalyst for such change."

BankTrack feels that the declaration is an improper way to address the valuation of natural resources. In a statement, the organization criticized it as "a false and disturbing response of the financial sector to the profound ecological crises of today."

"It is based upon a fatally flawed understanding of the root causes of these crises (imperfect valuation of 'Natural Capital and Ecosystem Services') and proposes an equally flawed solution to them (proper pricing)," the statement continues.

Describing the declaration as "a vaguely worded voluntary initiative with no immediate discernible impact on everyday investment decisions," BankTrack instead proposes, "Rather than a Natural Capital Declaration we need more Nature without Capital."

A true green economy, BankTrack argues, would consist of "reversing the tide of commodification and financialization, reducing the role of markets and the financial sector, acknowledging the limits of business versus other spheres of life, and recognizing the collective responsibility of all people for, and strengthening the democratic control over the worlds' ecological commons."

"We call upon the financial sector to withdraw itself from where it has no rightful place," the statement concludes.

Not all NGOs committed to the environment agree with BankTrack, however. The Global Canopy Program (GCP), which seeks to "protect tropical forests in a globalized economy that still values them more dead than alive," is one of three conveners of the Declaration.

At the launch, Andrew Mitchell, Director of the GCP, stated, "A tsunami of financial capital is flowing around the world and using up the natural capital upon which our future wealth and security depends."

"It's time to put our account with nature back in balance," Mitchell continued. "It's not about pricing nature, it's about saving ourselves. The visible engagement of finance sector leaders in this process is a giant leap forward."

On the other hand, a report issued by Friends of the Earth in advance of Rio+20 seems to share BankTrack's concerns, albeit on an even larger scale.

"The UN has been working very closely with big business in developing and promoting the concept of 'Green Economy' at the expense of sustainable development," the report states. "Industry is increasingly seen as a solution to our global environmental problems, ignoring the role of major corporations in creating the current multiple crises."

This article originally appeared at SocialFunds.com and is reprinted with permission.

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