Should We Monetize Nature?

How can business thinking expand into wonderment about how it fits into nature?

Coffee With Doc: Monetizing Nature

Land developments are often subject to environmental reviews, and the developers want a cost-benefit analysis. Such analysis requires assigning monetary values somewhere between zero and infinity to nature or to nature’s services. Can this exercise in monetization open business minds to think more deeply about an imperiled nature?

Suppose a developer wants to drain a swamp to put in a trailer park. Her business plan says that rental income will pay for filling the swamp and installing utilities. The dollar value of the trailer park is the net present value of these cash flows. But what value can she assign the swamp for comparison? No money goes into it or comes out; maybe it filters some water, but what else does it do for us? No reference market in swamps guides an appraisal procedure. Quantifying swamp values mires in muck because “value” implies direct human benefit, not a fuzzy benefit from just being there.

Efforts to preserve nature using free market incentives have largely failed. A much-celebrated attempt was Earth Sanctuaries in Australia, with a business model intended to make a profit preserving ecosystems. Cash income was mostly from tourists. After a four-decade run, it dissolved in 2006. An opinion in Science, 12 Aug. 2016, is that “governments did not institute the required price signals and restrictions to make private conservation profitable,” whatever that means.

A project to assign monetary values to ecosystem services is active in the United Kingdom. A multi-stakeholder organization, Natural Capital Coalition is developing guidelines for it. The new Teresa May government promptly reorganized the project and deemphasized it. Pleased executives welcomed Brits finally “coming to their economic senses.”

However, from its outset, environmentalists thought the project was far short of truly effective. The Natural Capital Protocol cites cases of companies examining and evaluating external costs, but happily improving the environment only if they increased revenue or decreased costs to the company.

Environmental critics hold that economic decisions should flow from “the biogeophysiology of nature,” that economic calculus abstracts away the systemic benefits of nature. Some bewail that capitalism can’t escape its “original sin,” marking off tracts of land, designating them as capital to be owned, and developing them to increase value. This values only the human use of property, ignoring its role in natural systems. Unless business decision makers escape their human-centered valuation system, “nature” and “capital” will remain irreconcilable concepts.

Given that, by what reasoning does the Natural Capital Coalition think that monetization is worthwhile? Capitalist thinking developed the modern world. Even socialist economies mark off properties and have market transactions. Now billions of people live or die by that system, fleetingly experiencing a diminished, artificial form of nature in parks, gardens, and zoos. Ultimately the system is doomed, and instant change is hopeless. Can monetization wean us away from transaction-centered thinking?

Very few of us feel less transactional, and as symbiotic with nature as the indigenous peoples of old, but they were few in number. Eight billion people can’t live in that way. While indigenous societies definitely disrupted nature, they knew that they utterly depended on it. Their deep bond with nature invoked rites and behaviors that we find strange. Modern bonding with nature would have to be different. How can monetization encourage a new feeling of symbiosis with nature?

It appears that factoring in environmental considerations may slow over-exploitation of nature – destroy less of it at a slower rate. However, stronger action is needed if we need to strike a balance with nature that is more in its favor; that lets it regenerate.

To help nature regenerate, we must strike a balance with it that lets nature thrive, not merely survive, so it can support us indefinitely. That’s regeneration. Naturalists have a few rough measures for whether nature is thriving, but translating them into money for cost-benefit analysis is a conundrum, to say the least. For example, what’s the value of a broad range of species?

Interestingly, the business world is beginning to doubt the usefulness of its own financial reporting for conventional investment decisions. In cost accounting the rumble about relevance is over thirty years old. Now confidence is waning in financial accounting. Books like The End of Accounting have started to appear. The time may be near for a revolution in business guidance systems.

Growing doubts about monetized numbers has not yet stopped the business world from regarding the touchstone of company performance as profit. However, corporate responsibility reporting (CSR) is regarded as a necessity by 95% of all large companies. About 25% integrate CSR into their financial reports, and task forces are wrestling standards for CSR.

One monetized ecological variable is CO2 removed from the air. On carbon trading markets it’s around $10 per ton, measured by weight like any commodity. However, critics think it is ineffective; that we are marketing just because we know how to market. Many other natural phenomena are poorly understood. Feedback loops are a mystery. A team of researchers in 2008 concluded that, “Market valuation is an exercise for people who have lost all sense of ecological embeddedness.”

In other words, systemic thinking about nature translates very poorly into linear business logic. Business thinking has to question how it fits into nature. Monetize that.

Regeneration is a world removed from the confines of a lone human company’s financial performance. Dragging monetized valuations of nature into a cost-benefit thought box is short of the insight necessary to let nature thrive. But a different feeling is not enough. For nature to regenerate, we need better working definitions of what we need to do. Perhaps that is what the Natural Capital Coalition (or the Compression Institute) should work on.

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