2030 B: Economics

Overview. Expressing our values toward nature in economic terms broadly engages the private sector, including global capital markets.  Ecosystem services valuation is a core methodology.  Ecological economics guides design of markets and other incentive systems for minimizing negative impacts on a large scale. Conservation is seen as more than just a tax deduction.

Context/Drivers.  The private sector supports updates to environmental laws to reduce regulatory uncertainty in the face of climate change and mounting environmental crises. Many have been stung by repeated environmental catastrophes and see environmental remediation as an investment in preventing future disruptions.  They quantify the impacts on their supply chains and build business cases for investing in making them more resilient, with a shrinking ecological and carbon footprint. They make the connection between commodity scarcity and land use policies globally. Sourcing and siting decisions strive for positive environmental and social impacts.  It’s not for all, but many businesses see the need to stand for something bigger than themselves if they are to attract the best talent and build a positive brand with young people who yearn participate in a bigger positive impact and who check up on the authenticity of the purported positive impacts; cheating, greenwashing and stonewalling are exposed and virally condemned.

Major multinationals are racing after growth opportunities in climate adaptation, environmental remediation, ecosystem service management and measurement, green infrastructure, etc. Carbon offset markets drive large-scale reforestation and soil-based carbon sequestration projects. Public funding for land purchase has been in decline as money is diverted to climate change adaptation and mitigation.  Philanthropic funds have been flat. Socially responsible and green investment funds, which now including conservation financing as a major segment, are popular.  Endowments and foundations are especially concerned about what they are investing in.

Strategies.  The utilitarian argument, that conserving nature is directly beneficial and, in fact, essential to human and business wellbeing, dominates. Valuing resources, and the processes that provide them, in economic terms makes investing in their protection for sustained future use easier for governments and businesses to understand. Ecosystem services methodologies are widely used in assessing value delivered by natural systems to humans, their societies and businesses. They also quantify negative impacts and enable broad use of compensation approaches that pool contributions from multiple projects (i.e. mitigation banking) in order to have a much greater positive environmental impact.

Engaging the private sector, including making conservation finance mainstream, has had a profound impact on conservation scale and scope. Billions have been marshalled toward improving ecosystem service health and resilience. Conservation has become a repeatable, scalable and investable proposition.

NGOs and governments establish market-based signals and incentives to drive positive private sector behavior and maximize benefit per dollars spent. Finite resources have value and that value is best set with markets supported by strong regulatory frameworks.  Dynamic markets provide effective, creative solutions for carbon sequestration, nutrient load reduction, storm water management, in-stream water quality, and habitat/biodiversity protection. These innovations enable scalable business models in the expanding “conservation for profit” sector.  As risk and return metrics are standardized and opportunities scaled up, new investment vehicles attract capital from private and institutional investors. Wetlands, shorelines and other water-related areas are main beneficiaries of green infrastructure solutions.

There is more cost/benefit analysis and willingness to go for the 80% solution that requires much less time and resource to achieve than a 100% one. Less is heard of absolute protections. Major funders embrace pay-for-success models, where measurable outcomes are expected. This has moved the field’s image away from the tree-hugger to a much more practical and results-oriented one.

Major Players.  Public, private and NGO partnerships are how big things get done. Agency staffing levels have not kept pace.  Increasingly they set the policies and then work through NGOs, who broker the involvement of the private sector. The NGOs have a complicated relationship with many big polluters, criticizing them for many things but working with them when there is an opportunity to use a “green” rather than “grey” solution. They work with the largest companies in the world because that is where the greatest leverage is for changing land use practices. Large land owners (farmers, foresters, miners, renewable energy companies) are a focus.

Many NGOs and foundations work to enable financial innovations to become broadly adopted. They standardize conservation impact metrics, so investors can have comparable financial and environmental returns statements across different funds. NGOs and governments move from funding large-scale projects to serving as venture conservationists, enabling early-stage ideas with first-round capital, expertise, and connections to then attract major institutional or private investments. For those focused on this work, this had been a heady time of expanding opportunity and resources.

Science.  Characterizing ecosystems in terms of services with a valuation methodology has been a major way for ecology to connect with economics, policy and regulation. Biodiversity is now seen as another service of healthy ecosystems.  Ecological economics has come into its own and is a mainstream discipline guiding policy change.

A key step in validating the economic valuation of ecosystem services was establishing the level of services provided currently, forcing solutions to the practical realities of measurement.  This baseline enables quantification of the change either from a restoration effort or an impacting development, and whether goals are being met. New sensor and observation technology makes this cheaper and easier to do across a large area.

Regulation/Policy.  Environmental regulations regularly use ecosystem services valuation techniques. Federal and State governments have created the regulatory/legal frameworks that enable markets in these services with input from the scientific, research, and policy community.  Clear pricing signals and predictable regulatory frameworks enable more ambitious and diverse conservation finance projects. Mitigation banks have been used more widely.

Regulation is a slow, blunt tool.  Its attendant litigation is extremely costly and time consuming. Aligning incentives is cheaper and works at scale. More effort is put into incenting private land owners to manage for conservation goals. If businesses have clear economic incentives, they figure out how to lessen their negative environmental impact.

A grand bargain allowed progress on regulation: a serious simplification of regulation, making the processes of permitting and compliance more predictable in cost and time, and in return, restrictions on impacts would be tightened and compensation requirements strengthened. Non-regulatory approaches and mindsets have been crucial to winning back bipartisan support for conservation.

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