What is more valuable, a tree, or its equivalent weight in paper products? Is a lake’s value equal to its volume in water bottles on supermarket shelves? Most of us would not know how to approach this question, with the dominant perception of value represented by market prices.
In the past few months, notable figures have discussed this perception of value, reflecting on in its growing importance to future development. In his 4 part presentation on the Reith Lectures, Mark Carney speaks of how market economies have turned countries into market societies whereby market prices determine the value of everything.
In a recent online lecture at the LSE, the Executive Director of The United Nations Environment Programme, Inger Anderson, spoke of the need to change the way we measure success, citing the limitations of GDP as a national metric of progress and suggesting efforts be directed on replacing it with a more holistic measure. A metric that can capture the enhancement / erosion of environmental value in addition to the traditional scale of consumption.
The issue at the heart of both Mark Carney’s and Inger Anderson’s arguments is the natural environment and other non-market goods (e.g. household work, raising families, informal community support) are considered free and ‘public goods’ and therefore do not factor into the production and consumption decisions of the market place.
However, the World Economic Forum recently found that half of the world’s GDP was moderately or highly dependent on nature and its services, such as pollination, water quality and disease control. In 2018, IPBES found that land degradation was costing the equivalent of 10% of global GDP in terms of biodiversity and ecosystem service loss.
All industries directly and indirectly rely on nature and the provision of ecosystem services such as healthy soils, clean water, and pollination. Each of these environmental functions have clear economic value, but their use is rarely captured in the market prices orchestrating production / consumption decisions.
The real economic benefits that can be gained by looking after our planet (if only in terms of avoided financial risk) dictate consistent and clear consideration of the environmental and societal impacts of our production and consumption decision-making is essential for real economic growth.
Making peace with nature is the defining task of the 21st centurySecretary General of the United Nations
Consumers, businesses and policy makers lack the full picture, as the full costs of production are not being reflected in the prices of products. To give an example, your average t-shirt will have a carbon footprint of about 5kg, which, using a Social Cost of Carbon of £60 per tonne of CO2e emissions amounts to 30p of environmental damage in terms of climate change alone. This clear cost of production is not included in the final price of that t-shirt. As the understanding of value gain, value loss and value accountability develop, the production costs are likely to grow for those businesses that do not routinely incorporate nature into their decision making systems and accounting frameworks. Therefore, businesses that do not act in a more responsible manner will likely fall behind their competitors who recognise the new operating reality.
As stated by the World Economic Forum, there is potential for a win-win-win-win for nature, climate, people and the economy if businesses and other economic actors act with urgency to protect and restore nature and importantly begin to regularly assess, evaluate and disclose the value of nature that is eroded and or created, directly and indirectly, through their day to day operations.
Route2 specialise in estimating the economic value of not only the natural environment but the many other non-market goods and services, enabling the full spectrum of costs and benefits to be factored into business decision-making and accounting frameworks.