Valuing the Natural World

Give thanks for phytoplankton. These single-celled sea creatures can’t be seen by the naked eye, yet we all have reason to be grateful for their existence. They produce up to half the oxygen we breathe and sequester as much carbon dioxide (CO2) as all land plants. These vital processes are threatened by human actions, such as the pollution of our seas by microplastics.

Phytoplankton don’t get much attention. These microscopic marine algae lack the charisma of nature documentary stars such as tigers and polar bears. Their role in our survival is less visible than, for instance, the pollinating work of bees.

They are far from alone in being undervalued. “The species that are important for underpinning human society, economy and well-being tend to be the small things that you don’t notice: insects and invertebrates, the stuff in the soil that keeps the nutrient cycle going,” says professor Martin Dallimer of the School of Earth and Environment at the University of Leeds.

Even as we more fully grasp the importance of biodiversity, our natural resources are being lost. Over a million species will vanish in the next few decades without radical change, according to research by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), a team of international specialists. And those are just the species we know of. “There are millions of species that have yet to be identified or even found,” Dallimer points out.

In December 2022, the world committed to action to stem further biodiversity losses. The UN Biodiversity Conference (COP15) in Montreal sealed an agreement on the 30-by-30 plan—protecting 30% of land and 30% of marine and coastal areas by 2030—which Dallimer hails as a “massive step change” in policy.

The deal, which is not legally binding, is a complex undertaking that will require close international cooperation to make it happen, along with vast amounts of funding. Current investments in nature-based solutions amount to $133 billion, according to the UN Environment Programme. That figure needs to at least triple by 2030 and increase four-fold by 2050 to fulfill the plan’s goals.

The agreement doesn’t consider the requirement for a corresponding switch of funds away from damaging activities. The OECD estimates that governments spend around $500 billion a year on subsidies that are potentially harmful to biodiversity, but the total of harmful public and private spending is likely many times higher. To preserve and foster biodiversity, investors are key to channeling funds in the right direction, as they have begun to do in the closely intertwined area of climate change.

“To help put a value on this natural capital, we really need the right incentives and policy makers to step up. In the same way as carbon prices have developed over the years, we need policy incentives for nature.”

World Resources Institute

Data on forest transitions show a u-shaped trend that reflects economic development. As nations like Canada, the United States, China, and Australia experience economic growth, their extensive history of deforestation will reach a plateau before reforestation takes place. Tropical deforestation has a bigger long-term impact on sustainability and biodiversity since it occurs most frequently in low-to middle-income countries.

A first step is to look at material risks in different sectors. Industries such as agriculture, fishing and mining have clear dependencies, and impacts, on nature. But analyzing the entire life cycle of an industry reveals some less obvious effects.

“Surprisingly, the pharmaceutical industry is highlighted as having quite a high impact on water pollution,” Cairns says. “That is not happening necessarily within their operations, but through the consumption of medicine, and the pollution that goes back into the system after humans have taken it.” As with Scope 3 carbon emissions, this is an impact for which the industry is indirectly responsible.

Metrics are in development that will guide investors in the preservation of natural capital. The Taskforce on Nature-related Financial Disclosures (TNFD) has already published an initial framework to provide organizations with guidance on nature risk, in the same way that the Task Force on Climate-related Financial Disclosures (TCFD) provides guidance on climate risk.

“Advocating to support mandatory disclosures on the dependency and the impacts that businesses have on nature, in line with emerging TNFD guidelines, is an important area for investors," says Cairns. "This will improve transparency and help understand risks and opportunities.”

abrdn is piloting the application of emerging metrics that can distill the complex factors in play. There are two main measurements, says Cairns. “The first metric is the mean species abundance. The higher that is, the better—so an untouched forest, for example, would be 100%,” she explains. “The other metric is the potentially disappeared fraction of species—so the lower that figure, the better. These are a lot more difficult to grasp than a carbon footprint, but we have to start somewhere.”

The company is also collaborating with the UK’s Natural History Museum on a pilot to apply its Biodiversity Intactness Index to nature-based solutions in Scotland in which abrdn invests, such as peatland restoration.

According to Cairns, investors keen to make a nature-positive contribution have two main options: They can consider businesses that develop strong policies to minimize their impact within traditionally high-impact sectors, emerging as industry leaders, or they can invest directly in solutions that have a positive impact on nature.

Cairns points to examples in the food industry: “Exciting emerging technologies, like alternative [plant-based] proteins, as well as vertical farming and regenerative agriculture [sustainable agriculture techniques], are really gaining traction. Land use change is the key driver of terrestrial biodiversity loss, and these innovations are critical to addressing that.”

Investment is also required for areas that historically have been underfunded—like phytoplankton’s marine environment. “The UN Sustainable Development Goal of conserving marine life [SDG Goal 14] receives only 0.01% of the total funding for all the goals,” says Cairns. According to the World Economic Forum, $175 billion a year is needed to achieve SDG 14 by 2030. However, between 2015 and 2019 less than $10 billion was invested. Of the 17 SDGs outlined by the United Nations in 2015, SDG 14 is the least funded.

Addressing these issues requires the uncomfortable act of putting price tags on Earth’s priceless natural diversity. But this is now unavoidable, says Dallimer. “We should never forget the beauty and wonder of biodiverse, well-functioning landscapes and ecosystems, nor our moral and ethical duties to protect the species we share our planet with,” he says. “But by putting a monetary value on natural capital, we’re able to give it more visibility in the decisions that are made by businesses and investors.”