At last month’s annual meeting of the World Economic Forum in Davos, the chief executive of Coca-Cola floated the idea of putting a global price on water. James Quincey, whose company uses over 300 billion litres of water each year, called for water to be attached to the discussion on climate change. “If we could value water in the same way we could value carbon, then the market will be the mechanism to drive the results,” he said in a panel discussion.
This is not just idle talk. Companies and governments now understand that the use of natural resources comes with a heavy cost, both for the planet and for our future. To use an extreme example, if we use up all our fresh water to make fizzy drinks, it will become impossible to grow the food we need to survive. And as climate change pushes global temperatures higher, it will only become more important to preserve our natural biodiversity.
To value and protect our planet’s natural assets, we must ensure that the true cost of nature is reflected in the cost of doing business. That means shifting our classical extractive economy to a new biospheric economy, or the bioeconomy. But it would be wrong to think of this transition simply in terms of additional costs for businesses — it is a historic opportunity too. We believe developing the bioeconomy has the potential to more than double the output of our traditional anthropogenic economy.
The evolution of carbon credits shows how this can work. Carbon credits were first introduced almost 25 years ago under the Clean Development Mechanism (CDM) as part of the Kyoto Protocol, the United Nations’ first international agreement to cut CO2 emissions. Since then, the focus has shifted to economic reward structures, first incentivising the protection of standing forests and then creating carbon credits from avoided deforestation and degradation with the launch of the REDD+ framework and the growth of voluntary carbon credit markets.
This has created a financial instrument that values nature and allows it to be included within our economy. Through carbon credits, nature is now a participant in business decisions and economic activity around the world.
The other invisible hand
Nature, of course, has long been an active part of our economy, but one that has received no financial reward. When Adam Smith wrote about the invisible hand as a metaphor for markets and self-interested individuals operating interdependently, he ignored the fact that hands tend to come in pairs: there is another invisible hand within our economic system in the form of the services we receive from nature.
The value of that contribution is significant. The Organisation for Economic Development and Cooperation (OECD) in its 2019 report, “Biodiversity: Finance and the Economic and Business Case for Action”, estimated that the real financial value of the nature-subsidy, delivered to the global economy through processes such as crop pollination, water purification, flood protection and carbon sequestration, stood at US$125 trillion to US$140 trillion. To put this figure in context, it represents 160% of 2019’s global US$87.61 trillion GDP figure.
This subsidy from nature is inherent to our economic system, but the risks remain dangerously underappreciated.
Biodiversity loss threatens the flow of services we receive from nature. For example, damage to complex ecosystems can threaten insect populations that are crucial to the pollination cycle, which supports our cultivation of fruit and nuts to eat and cotton to wear.
Creating economic instruments to value, and in turn protect, the biodiverse systems that provide those services represents a simple model that allows us to build on our existing methodologies and recognise nature as a valued participant in our economic activities. When combined with carbon credits, biodiversity credits could dramatically change the economic incentives for protecting our oceans and forests, making conservation an attractive business proposition.
Bigger than the internet
Our forests and oceans are a treasure trove of biological and ethological information, and they deserve to be valued as an integral part of our intellectual capital. From the study of movements within ant colonies to improve self-driving vehicle algorithms in collision avoidance to the venom from the Malayan pit viper being used to create new drugs to reverse the symptoms of stroke victims, nature is already making huge contributions to our innovation economy. According to the US National Cancer Institute, 70% of plants that are useful in the treatment of cancer are found only in rainforests.
Recognising the value of the biosphere presents a potential economic opportunity that will dwarf what we have experienced in the age of the internet. Now more than ever, it is vital for us to develop the methodologies and economic instruments that allow us to transition to the bioeconomy.
Returning to the example of water, a better understanding of the implications of water usage would also ensure the response to climate change does not create more problems in the future. Electric batteries, for instance, rely heavily on lithium mining, a water-intensive process that threatens to disrupt agriculture and drain water resources in producer countries.
Economic instruments that value the services we receive from nature are only the start of the journey. By valuing forests, lakes and oceans for their contribution to our economy, we can move away from a wasteful, non-renewable approach to natural resources to an economy that values and nurtures the world’s resources and leverages nature as an innovation engine. That is a proposition with much higher financial rewards.
Dorjee Sun is the CEO of Bioeconomy, a business actively developing carbon credits and other nature-valuation instruments with landowners across Southeast Asia and Sub-Saharan Africa. This column is part of a series coordinated by Climate Governance Malaysia, the national chapter of the World Economic Forum’s Climate Governance Initiative (CGI). The CGI is an effort to support boards of directors in discharging their duty of care as long-term stewards of the companies they oversee, specifically to ensure that climate risks and opportunities are adequately addressed.