The value of biodiversity
Biodiversity provides humanity with essential goods and services: the food we eat, the water we drink, the air we breathe, the sequestration of carbon we release through our economic activities and the regulation of the global climate – all depend on the existence of plant and animal life.
Widespread notions of growth and economic progress were built on the assumption that natural resources were infinite at a time when the world supported a population of less than 4 billion people. As a result, economic growth is occurring to the expense of natural capital, which is being depleted at a global scale to meet the demands of a world population that is heading towards an estimated 10 billion by 2050. The associated environmental externalities may be undermining the sustainability of our current economic model and call into question traditional measures of wealth and development such as Gross Domestic Product (GDP). Alternative indicators have been developed to take into account social and environmental aspects. One of these is the Inclusive Wealth Index5 (IWI) that focuses on how a country manages its total capital stock. This approach reveals that ‘real’ growth – growth adjusted for natural capital destruction – is substantially lower than headline GDP. In fact, according to the IWI, some countries are growing poorer as the decline in natural capital is outpacing the increase in other forms of capital.
Assessing natural capital and determining how to integrate it into direct economic measures represents a shift in approach and also a practical challenge, due to our limited knowledge about the relationship between ecosystems and the value of the services they provide. Their ‘existence value’6 is equally difficult to quantify with any reasonable level of certainty. In spite of this, Pr. Robert Costanza, from Portland State University and his team proposed a methodology as early as 1997 to value ecosystem services and estimated them at US$33 trillion per year7. In 2011, the team updated their initial estimate to US$125 trillion per year8. Measuring the monetary value of biodiversity allows us to better assess its importance in terms decision makers are used to.
To better estimate the value of nature and help take appropriate action, it is paramount that we improve our understanding of what is at stake and investigate questions such as the relationship between biodiversity and climate change, the extent to which biodiversity is linked to food security – and, hence, to potential conflicts – the cost of natural capital erosion for our economies and society, and the role that the insurance industry through its underwriting strategies and investment decisions.
5 The Inclusive Wealth Index is a UN Environment Programme-supported effort that measures the wealth of nations by carrying out a comprehensive analysis of a country’s productive base. That is, it measures all of the assets from which human well-being is derived, including manufactured, human and natural capital. In this, it measures a nation’s capacity to create and maintain human well-being over time. 6 The value people derive from knowing biodiversity is there, even if it is never utilized or experienced (Hageman, 1985). 7 Robert Costanza et al., “The value of the world’s ecosystem services and natural capital”, in Nature, 387 (1997), p. 253-260. 8 Robert Costanza et al., “Changes in the global value of ecosystem services”, in Global Environmental Change, 26 (2014), p. 152-158.