“Treat biodiversity loss as an asset management problem”, experts tell UK government

The UK Government has been warned that nature currently faces “an asset management problem” in a report commissioned to look at the economics of biodiversity, as the topic continues to gain momentum in the financial world.  

Environmental economics pioneer Professor Partha Dasgupta’s released an interim report on how to enhance both biodiversity and economic prosperity, commissioned by HM Treasury in March 2019. 

Targeted at economic and financial decision makers, the review aims to shape the international response to biodiversity loss, and set out a unified framework for thinking about the economics of biodiversity in the context of global goals for sustainable development. 

It sets out the thinking behind a forthcoming review, highlighting the need to “view nature as an asset, just [like] produced and human capital” and “understand the loss of nature as an asset management problem, and that we must manage our overall stock of all capital assets more efficiently”.

It says humanity has been “mismanaging the global portfolio of assets” and demonstrates the inefficiencies in natural capital management. 

“Just as diversity within a portfolio of financial assets reduces risk and uncertainty, diversity within a portfolio of natural assets – biodiversity – directly and indirectly increases nature’s resilience to shocks, reducing risks to the services on which we rely.”

It reiterates the findings of recent reports suggesting that the current high rates of biodiversity loss pose a major risk to economies, citing the recent Global Assessment of the Intergovernmental Platform on Biodiversity and Ecosystem Services, and the World Economic Forum’s most recent Global Risks Report.

It says “much of the biosphere is open to all at no monetary charge, so nature’s worth to society is not reflected in market prices”. 

“The private rate of return on investment in many forms of natural capital remains low, even zero. These pricing distortions mean we are investing relatively more in other assets, such as produced capital, that yield lower social rates of return.”

The final review will be published in advance of the 15th meeting of the Conference of the Parties (COP15) to the Convention on Biological Diversity (CBD), which is due to be held in Kunming, China later this year. It will include recommended levers for action, covering policy, finance, institutions, economics and technology.

The interim report explains: “Just as diversity within a portfolio of financial assets reduces risk and uncertainty, diversity within a portfolio of natural assets – biodiversity – directly and indirectly increases nature’s resilience to shocks, reducing risks to the services on which we rely.”

Led by Dasgupta, who is Frank Ramsey Professor Emeritus of Economics at the University of Cambridge, the review is assisted by an interdisciplinary team based at HM Treasury as well as an Advisory Panel drawn from public policy, science, economics, finance and business.

The review team is inviting feedback, to be sent by June 1, 2020. 

It is the latest in a string of moves that suggest biodiversity is moving up the financial agenda. Four major investors in the ESG space – Mirova, Sycamore, Axa and BNP Paribas Asset Management – joined forces earlier this year to work on a biodiversity data initiative.  The following month, a group of Dutch financial institutions teamed up to develop a common accounting measure for the positive biodiversity impacts of their investments.