Building Back Better: UK’s HM Treasury Review of the Economics of Biodiversity Provides a Compelling Framework for Action

We all know the crisis brought by the pandemics of COVID-19 has shaken the world.  The loss of life and massive disruption in everyday work is too evident to be mentioned again. The global economy has been hit the hardest, bringing an economic depression in all sectors like the 1930s. Unemployment, poverty and inequality especially in a country like India affecting migrant workers, rural non -farm labourers, informal sectors are glaring.  But few are aware of the root cause of this problem. The disruption in ecosystems including illegal trading of wildlife and destruction of biodiversity are the main reasons behind this pandemic (though away from the public gaze and glare).

Management of biodiversity and climate change are key to avoid such occurrences in the future. Various reports and assessments including Inter Governmental Science Policy Platform for Biodiversity and Ecosystem Services (IPBES) have suggested that we are losing biodiversity at an alarmingly high rate. The IPBES in its latest report mentions that every year the world is risking 1 million animals and plant species to extinction. Pristine ecosystems (relative unperturbed) are less than 5% of global geographical area. Various ecosystems are either decaying or already lost. The IUCN REDD ecosystem protocol reveals that out of 2800 assessments of ecosystem conducted in 100 countries, 45% have been found at risk of collapsing.  Even the mass extinction of species and other biodiversity is occurring faster than anticipated. These facts do not bode well for resilience, diversity and biophysical immunity which are key to fight against unwanted pathogens in the human body.

From 1996 to 2010, approximately 12% of the world’s mangroves have been lost due to anthropocentric drivers of change.  UNEP’s Inclusive Wealth Report (IWR) (the composition of produced, natural and human capital) shows that natural capital is on the decline for 1992-2014 despite the rise in economic wealth and income. Professor Sir Partha Dasgupta- one of the pioneer and original thinkers in the field of environment / ecological economics, was Chair of the Science Panel for the IWR.

Why nature and biodiversity are important is not difficult to understand. They provide sustenance and base to economic activity. Two-thirds of the world’s GDP, directly and indirectly, are related to the world’s ecosystems and biodiversity. The World Economic Forum in its latest report identifies climate change and biodiversity loss as the two most important threats (out of 5) for business and the economy (WEF, 2020). The contribution of natural resource management has been significant in the economic system and the environment. Global economic development has been followed by the depletion of natural resources, diminishing environmental services, and environmental degradation, which together compromise a significant portion of sustainability of the future generation.

For effective management of natural capital, analogous to the asset accounting in industry, nations should consider wealth accounting. And wealth accounting should include the biodiversity and ecosystem health in its operationalization; because a crystal-clear quantifiable measurement of biodiversity would be the first milestone. Measurement of biodiversity and natural capital induces accountability and facilitates monitoring of the progress of conservation goals.

The interim report from the Dasgupta Review (led by Professor Sir Partha Dasgupta, Cambridge) for the HM Treasury, UK is eye-opening – an  independent, global review on the Economics of Biodiversity.  An interim report of the Review, published on April 30, 2020, sets out the key economic and scientific concepts which will underpin a comprehensive framework for how we think about the economics of biodiversity. Keeping in mind the economics, finance and development constituencies, the interim report provides a coherent and well-structured narrative on how the economy and future of society are connected to the fate of nature and biodiversity.

Some of the major findings in the report include, first, since the 1950s, the phenomenal rise in economic growth has been achieved at the cost of biodiversity, climate and nature in general. Second, biodiversity is a key determinant of the productivity and resilience of nature. Just as diversity within a portfolio of financial assets reduces risk and uncertainty, so diversity within a portfolio of natural assets increases nature’s resilience to shocks, including major natural disasters, human-made environmental damage, and the emergence and spread of infectious diseases. Third, ecosystems are like capital assets providing more than 19% rate of return, but they remain undervalued as their contributions do not get captured by the conventional metrics of the economy. Fourth, we have to get to a point where we operate within the limits of the regenerative capacity of earth’s ecosystems.  Human’s extraction of ecosystems must remain within the ambit of the regenerative capacity of the ecosystems. Finally, the devastation that COVID-19 is causing underscores the importance of biodiversity for our health, the health of the global economy, and the need for the human enterprise to live within the ‘safe operating space’ of the biosphere.

As expected, the Review suggests that governments must stop using perverse subsidies, which fund, though indirectly, the loss or damage of ecosystems to achieve short term economic goals. It should change the metrics we use to indicate success; for example, GDP has no balance sheet. The recommendation categorically suggests adopting inclusive wealth as a measure of progress toward sustainability. Inclusive wealth embraces all our capital goods: produced, human, economic and natural, and needs to be built into our economic systems and institutional rules, including accounting systems.

Policy makers as well as researchers in the field of environment, ecology and development are keenly waiting to see the Final Report of the Review which is likely to be out by the end of this year 2020.

Through this globally influential report (the final version is yet to come) seems to be an effort to bridge the two disjunct aspects conservation and development through the optics of finance and economy. When the world is reeling from the impacts of a pandemic caused at least in part by our exploitation of natural systems, it is the best time for us all to rethink our priorities and embrace a future where nature has a central role while moving towards ‘building back better’.

Views are personal and not of UNEP.