The long-awaited Dasgupta Review on the Economics of Biodiversity emerged last week, and its message is stark: The world needs to fundamentally overhaul how society measures economic success if it is to stem the rapid decline of biodiversity that threatens civilization itself. The central conclusion — that our demands on nature far exceed its capacity to supply them, putting biodiversity under huge pressure and society at "extreme risk" — may not be a new observation, but it is rare to see it presented quite so clearly in a government-commissioned report.
The landmark paper, which explores the relationship between biodiversity and economics, argues that natural capital has long been ignored by economic thought, an omission that has enabled the destruction of natural resources on a monumental scale. The stock of natural capital per person declined by nearly 40 percent between 1992 and 2014, a period when produced capital per person doubled, and human capital per person increased by about 13 percent.
This imbalance must be addressed, according to the report, or else disaster awaits. Just like human capital and produced capital, nurturing and growing natural capital must become a central pillar of global economic decision making. The alternative is that the natural asset base that underpins the global economy risks being eroded to the point where collapse becomes a credible scenario.
Estimates suggest we would require 1.6 Earths to maintain the world's current living standards.
A significant portion of the review sets out how this fundamental reshaping of the global economy could come about and in so doing proposes a raft of rapid, transformative changes that could rejig finance, education, production, consumption and institutions to protect biodiversity and future human prosperity. Policy makers, business leaders, financial sectors and communities all have a part to play in this sweeping vision.
Don't have time to read the 606-page report? BusinessGreen has summarized all its major recommendations here.
Human demands on nature must be curbed
The report warns we have collectively failed to manage nature sustainably, noting that demands on nature far exceed its capacity to supply us with the goods and services we all rely on. Estimates suggest we would require 1.6 Earths to maintain the world's current living standards.
While technological innovations and an embrace of more sustainable food systems can decrease human impact on terrestrial biodiversity loss to some extent, reducing human demands on nature in line with supply will require a far more fundamental restructuring of human consumption and production patterns, according to the review.
As such, it calls for decision makers to introduce policies that explicitly challenge existing patterns of consumption by changing prices and behavioral norms. This could include enforcing new standards for reuse, recycling and sharing, introducing new taxes on unsustainable activity, and embedding environmental objectives across global supply chains.
Redressing underinvestment in development programs geared at delivering community family planning services and boosting women's access to finance and education is also essential, according to the review. It posits that giving women greater control over their lives can lift living standards and result in lower fertility rates — meaning less pressure on natural resources.
Nature's supply must be increased
But there is also work to do on the supply side. Around the world, the management of legally protected areas must be improved, the review notes. Meanwhile, increased investment in nature-based solutions that address biodiversity loss, contribute to climate change mitigation and adaptation, and create jobs is also necessary. On this point, the report cautions that it is far less expensive to conserve nature than to restore damaged or degraded resources.
It predicts that conserving and restoring natural assets also will have the net effect of alleviating poverty, given that the natural capital forms the bulk of wealth in low-income countries, and those on low incomes tend to rely more directly on nature.
We need a new measure of economic wealth
For more than 70 years Gross Domestic Product (GDP), or national economic output, has been the primary measure of economic success. But the metric is deeply unpopular in many circles for its failure to take stock of natural capital and its part in propping up an economic system that incentivizes activity that depletes ecosystems and habitats crucial to human survival. Some countries have taken steps to incorporate natural capital and ecosystem services into national economic metrics, for instance China with its Gross Ecosystem Product and New Zealand's Living Standards Framework.
The review firmly aligns itself with this school of thought, calling for governments to embrace a new measure it dubs "inclusive wealth," which gauges how well societal wellbeing is being protected by combining the accounting value of produced capital, human capital and natural capital.
Contemporary models of economic growth and development tend only to consider produced and human capital as primary factors of production, not natural capital, and "inclusive wealth" is careful to address this omission, it notes. The approach would highlight the benefits from investing in natural assets and "illuminate the trade-offs and interactions between investments in different assets," the review argues.
And that means strengthening natural capital reporting
But, with natural capital accounting still in infancy and significant design and measurement challenges remaining, work needs to be done to boost reporting and assessment frameworks that better tally the worth of soil, trees, water, air, minerals and other resources.
As such, the report calls for international players to collaborate closely on the construction of new natural capital accounts. Priorities should be efforts to standardize data and modeling approaches, on providing technical support and increasing investment in ecosystem valuation and the physical accounts themselves, it notes.
The existing financial system is fundamentally tilted against nature, it argues, with financial flows devoted to enhancing our water, air, soil and other assets dwarfed by subsidies and other investments that exploit those assets.
Regardless of the challenges that lie ahead, governments and businesses should support and embrace natural capital systems, it argues.
But this is where the report gets controversial with some environmental campaigners arguing that any attempt to "put a price on nature" simply increases the likelihood of it being monetized and degraded. As journalist and campaigner George Monbiot observed last week, the report's overarching focus on positioning nature as another asset to be managed "is the mindset that has trashed the living world." "Now, we are assured, it is the mindset that will save it," he added.
The global financial system needs a rethink
But the report is insistent that something has to change in the way economic and natural systems are managed. The existing financial system is fundamentally tilted against nature, it argues, with financial flows devoted to enhancing our water, air, soil and other assets dwarfed by subsidies and other investments that exploit those assets. The review cautions that most governments pay out more to activities that harm nature than those that protect it, for instance through poorly designed farming subsidies.
As such, international and private financial institutions, governments and central banks should team up to build a financial system that protects biodiversity and encourages sustainable consumption and production, according to the report.
A set of global standards, underpinned by credible data, should be drawn up that allow businesses and financial institutions to fully integrate nature-related considerations into their decision-making and their financial disclosures, the review stresses. Emulating the climate-related financial disclosures that are gaining traction across the business and finance sectors today, nature-based financial disclosures also must become mainstream, it contends. This would allow firms to account for the dependencies and impacts on nature in their activities, it notes, adding that central banks and financial regulators must support this push by undertaking major reviews of the systemic extent of nature-related financial risks.
But the market can't do everything
However, a key conclusion of the report is that simply accounting for nature and putting a price on natural capital will not, on its own, prove sufficient in protecting natural habitats. As environmental campaigner Guy Shrubsole noted last week, the review also endorses improved regulation and protection of high value areas.
The Review states that "in many cases there is a strong economic rationale for quantity restrictions over pricing mechanisms. Expanding and improving the management of Protected Areas therefore has an essential role to play... Protected Areas can act as a form of quantity restrictions as alternative approach to market mechanisms to prevent degradation of our natural assets."
It also highlights how having a Protected Area in name alone is unlikely to be much help, noting recent estimates that only 20 percent of Protected Areas are being managed well. "More investment in Protected Areas is needed," it recommends. "It has been estimated that to protect 30 percent of the world's land and ocean and manage these areas effectively by 2030 would require an average investment of $140 billion annually."
Consequently, a combination of legislative and market-based approaches are recommended throughout the report. Proposals to pay countries to keep rainforests standing or extend marine protection may have generated headlines this morning, but the report also advocates restrictions on the exploitation of globally significant ecologically sensitive areas.
'Polycentric' governance systems can drive change
Such a nuanced approach means neither top-down nor bottom-up institutional structures are likely to be the best way to deliver an economic system that protects biodiversity while bringing about a fair distribution of assets among humans, according to the review.
It instead advocates for institutions to adopt a "polycentric" approach that pools knowledge and perspectives at all levels, where information flows "every which way."
Environmental education must be embraced
As such, the report argues that education also can play a major role in fixing society's unhealthy relationship with nature. It calls for decision makers to craft fresh education policy that can remedy humans' increasing detachment from the natural world.
It has been estimated that to protect 30% of the world's land and ocean and manage these areas effectively by 2030 would require an average investment of $140 billion annually.
Education programs should focus on local issues and the role of communities and civil societies in the economics of biodiversity, and reach people of all ages, according to the review. Efforts to help people understand and connect with nature will not only improve health but will empower citizens to make informed choices and to demand higher standards from business, finance, and government, it posits.
The report warns that teaching about nature at present tends to be confined to primary school and that studies have shown that connection with nature hits an all-time low in people's mid-teens. One idea suggested in the review is for universities to mandate that all students attend a course on basic ecology, as a way to connect students, in particular those that have grown up in an urban environment, with nature.
A game-changer for nature?
The implications of the review for businesses and investors are obvious and considerable. The Stern Review on climate change on which the Dasgupta Review was modeled helped trigger a decade of more ambitious climate action in the U.K. and around the world that took in carbon pricing policy, new standards and regulations, and private sector investment and innovation. The hope is that this new review can do the same and help trigger a serious rethink of priorities within treasuries and boardrooms around the world.
The challenge is that almost every aspect of this agenda is contentious and littered with risks. Natural capital accounting easily could lead to further damage to biodiversity, as campaigners fear, unless it is very carefully managed. Meanwhile, many countries bristle at the impact on their sovereignty of market-based mechanisms and Protected Areas alike.
However, the Dasgupta Review does make one thing clear that nearly everyone can agree on: Mainstream economic thinking is badly flawed and needs to be reformed if environmental disaster is to be avoided.