Issue 1/2018

Putting a price on nature

Christian Mihatsch, 1 Mar 18
WWF has named a former banker and economist as its new president. With the appointment, the environmental body hopes to highlight the importance of factoring the value of clean air and water into GDP calculations.

Sigmar Gabriel needed someone who knew a thing or two about money and protecting the environment. At a summit held in 2007 in Potsdam, the G8 environment ministers had realised that no one knew how to measure the value of biodiversity – and decided to do something about it. Gabriel, Germany’s then environment minister, set about looking for a suitable lead author for a study, to be conducted over several years.

His search led him to Deutsche Bank employee Pavan Sukhdev, the creator of a “green accounting” system designed to convince politicians in various Indian states that it pays to protect the environment. Sukhdev, the son of a security officer, was born in Delhi in 1960. After studying physics and economics he initially worked as an investment banker for Australian group ANZ. In 1994 he switched to Deutsche Bank to head its Global Markets division in India.

The value of a tree

He left the bank in 2008 to devote himself exclusively to his greatest passion: the environment. He was appointed special advisor to the United Nations Environment Programme (Unep), where he founded an initiative aimed at persuading companies to incorporate sustainable development into their accounting processes. Whether in India or anywhere else in the world, the fundamental problem is the same: “Unfortunately, our accounts across all nations use a current system of national accounting that does not reflect the value of ecosystem services,” says Sukhdev.

Nature provides us with services such as clean air and water or fertile soil which we regard as free. This has devastating consequences: “It does not reflect the loss of this value, when we lose forests, when we lose wetlands and when we lose the quality of nature.” To put it another way: a tree in a forest has no value in GDP terms: it only finds its way into the books when it is felled and sold.

Not a luxury issue

Accordingly, Sukhdev’s study “The Economics of Ecosystems and Biodiversity” predictably concluded that economic development is often achieved by plundering our natural capital. The study estimates that deforestation alone is responsible for the destruction of natural resources worth USD 2,000 to 4,500 billion each year – or between 2.6 and six percent of current global GDP. Given the world economy’s present growth rate of 3.5 percent, in the worst case scenario value is actually being destroyed rather than created.

And the cost is shouldered primarily by the world’s poorest. “Biodiversity is not a luxury for the rich, but a necessity for the poor,” Sukhdev explains. On the other hand, his research also yielded some good news: yearly investments of USD 45 billion in conservation areas can lead to ecosystem services worth USD 5,000 billion. This is a language politicians understand – something that conservation body WWF hopes to leverage with its recent appointment of Pavan Sukhdev as its next president.

“Pavan’s knowledge of the interdependence between economic and natural systems connects perfectly with WWF’s higher ambition for impact,” said WWF director-general Marco Lambertini. Sukhdev is not afraid to think big in his new role. He sees the challenge facing the organisation as “redefining humanity’s relationship with the planet.” For this relationship to be anchored in accounting principles may seem surprising to some. But ultimately, nature does not care why we decide to end the exploitation. All that matters is that we do.

 

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