Financialisation, biodiversity conservation and equity: some currents and concerns

Sullivan, Sian (2012) Financialisation, biodiversity conservation and equity: some currents and concerns. Environment and Development 16. Penang, Malaysia: Third World Network. ISBN 9789675412691.

Abstract

Executive Summary: When nature is viewed in monetary terms, is it the nature that is valued, or the money? And what implications does this have for ecosystems and equity, given a financialised economy that rewards money products and their brokers, and that tends towards speculative and volatile dynamics? The current biodiversity crisis is giving rise to calls for a massive mobilisation of financial resources to conserve biodiversity, and to reduce the drivers of biodiversity loss. The possibility for ‘innovative mechanisms’ to assist with resource mobilisation needs is included in the Strategic Plan for Biodiversity (2011-2020) of the Convention on Biological Diversity (CBD). This has generated a fizz of interest around what might constitute ‘innovative financing mechanisms’ for biodiversity. At the same time, much attention is directed to questions of how much nature is worth, and of how this worth might be signalled through prices that move decision-making in directions that are more ecologically sustainable. The recent UN programme on The Economics of Ecosystems and Biodiversity (TEEB) gives added impetus to the incorporation of monetised ecological values into national and corporate decision-making and accounting practices, and is welcomed as such in the CBD’s current Strategic Plan. Financial support for TEEB comes from the European Commission, Germany, the United Kingdom, Netherlands, Norway, Sweden and Japan. Accounting for nature in terms of ‘natural capital’ and ‘ecosystem services’ also creates wealth-generating opportunities through the possibility that proxies for conserved or restored nonhuman nature can be mobilised as capital-bearing assets. This reflects a ‘Green Economy’ ideology proposing that social equity and environmental sustainability are compatible with further economic growth and entrepreneurial activity. A pillar of this ideology is the conversion of nature health and harm into capital assets that can be traded and financialised, and requires the following: Numerical representation. First, nature needs to be conceptually ‘cut up’ into units that can be represented as numbers. These numbers, often referred to as ‘metrics’, act as surrogate or proxy measures for valued aspects of ecosystems. Numerical representation reduces ecosystem complexity to create apparent equivalence and commensurability between different locations and times. Through this, trade-offs between sites of development and sites of conservation become possible. Monetisation. This is the process whereby something is conceived of in monetary terms, and thus behaves as a commodity that can be exchanged for a monetary payment. The use of metrics for turning aspects of nonhuman nature into numerical scores helps generate monetary figures for use in cost-benefit analyses and cognate economic models. As noted by economists, these can produce monetised values that, whilst useful, may be ad hoc, unreliable, and even deceptive. The state as market facilitator. Legal markets require state participation in numerous ways. In environmental markets for conservation, the state provides regulatory frameworks to generate demand, creates terms attractive to investors and entrepreneurs through tax breaks and subsidies, and can underwrite loans bound with nature assets to make these investable by the private sector. These processes enable measures of nature health and harm to become marketised, capitalised and financialised in various ways: Trading nature. Payments for Ecosystem Services (PES) are considered to compensate for economic opportunity costs in contexts where environmental uses are altered so as to conserve the integrity of particular ecosystem functions. PES might take the form of relatively simple direct payments for transformed behaviour so that ecosystem service managers maintain a defined environmental good. Examples include water users paying upstream farmers not to engage in practices that might damage water quality downstream, or payments to tropical forest dwellers for the maintenance of carbon stored in trees constructed as an ‘offset’ for industrial CO2 emissions. Many existing national ecosystem services markets are maintained through substantial government subsidies. New legislative structures also make it possible for developers to offset new environmental harms, through purchasing conservation activity on formally owned land areas elsewhere, and thereby trading environmental harm for environmental health. Examples include species and wetland mitigation banking in the USA, habitat banking in the UK, and various biodiversity offset schemes globally, all of which trade fungible units of species, habitats and biodiversity. Nature markets. The conversion of nature aspects into numerical scores associated with monetary payments enables markets in conservation indicators. To create and service these markets, as well as to facilitate ‘price discovery’ through linking buyers and sellers, voluntary market exchanges for conservation measures currently are being established by nature brokers and environmental-financial entrepreneurs. Examples include the US ‘Earth Exchange’ of Mission MarketsTM, and the UK’s Environment Bank Ltd, through which conservation credits can be traded as commodities. The prospect of financial gain from these markets is attracting large entrepreneurial investors. Bonding nature. Once elements of nature have been conceived as monetised units, they can also be leveraged as a new class of capital asset. As such, they may become the collateral for capital-releasing loans bonded with the designated monetary value of the underlying nature aspect. New environmental bond structures are suggested for the ‘frontloading’ of predicted future incomes from conserved ecosystems, which would act as collateral for loans by private investors and multilateral donors. This would connect investor finance now with infrastructural developments considered in time to enhance environmental sustainability and to generate financial returns. ‘REDD+ bonds’, for example, would permit the mobilisation of predicted future payments for expected emissions reductions provided by standing forests under the United Nation’s REDD+ mechanism (Reducing Emissions from Deforestation and Forest Degradation in Developing Countries) to act as collateral for loans to finance upfront investments in REDD+ and other environmental infrastructure. The World Wide Fund for Nature (WWF), the Global Canopy Programme, the Climate Bonds Initiative, Goldman Sachs and the private bankers Lombard Odier, similarly propose that through ‘forest bonds’ guaranteed by the national governments of forest-rich countries, the ‘natural capital’ of tropical forests could be ‘materialised’ to leverage finance for development from global capital markets. It is unclear who would own collateralised (i.e. pledged) ‘natural capital’ in the case of possible payment defaults. Nature derivatives. As observed for the recently created market in tradable carbon units, the big money tends not to be in the credits themselves, but in poorly regulated voluntary and bespoke over-the-counter (OTC) trades in financialised products derived from these credits. As units of conserved or restored nature are leveraged as ‘natural capital’ in environmental markets, bonds and mortgages, these might be similarly ‘securitised’ into derived money-bearing products. This could transform the risk of species extinction and biodiversity decline, for example, into speculative opportunities. It is unclear what implications this would have for the ‘underlying’, which in this case could be credits for species populations, biodiversity and habitats. These are significant in-roads into the financialisation of biodiversity conservation, that may contribute to a scaling-up of financial resourcing for the sustenance of biodiversity. But these innovations also generate concern: Conservation markets such as habitat banking require development-related ecological harm for their existence, so as to maintain the sorts of prices that might fund the conservation considered to offset development-related environmental harm. This generates a perverse situation in which ecological harm ensures market values for conservation, such that degradation is needed in order to sustain market demand for this conservation mechanism. The raising of economic rents for land areas through the enhanced monetary values commanded by credit-bearing indicators of nature health may act to displace people from land areas as governments and investors seek to ‘grab’ these new values. Such enhancement of inequity is both unethical and may amplify the drivers of biodiversity degradation by diluting the possibility of collective action in support of conservation policies. The legal and customary rights of indigenous peoples and local communities will also be impacted. Finally, conversion of complex landscapes into numerical and monetised metrics instrumentalises peoples and nonhuman natures so that these conform to a homogenising system in which money is the mediator of all value. This can displace local eco-cultural knowledge, practices and values which may be more benign for biodiversity, thereby reducing options for transferring maximum socio-ecological diversity to our descendants.

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