"A good decision is based on knowledge and not on numbers." Plato
The economic quantification of natural systems presents a significant challenge for sustainable development. Many initiatives have sought to explore and align sustainable and financial performance. Studies on the success of more sustainable companies and, latterly, investigations into the economic value of ecosystems and ecosystem services through natural capital accounting have been the focus of much effort and seek to place ecosystem value alongside financial value. The logic is this: once we know a thing's price, we can value it properly. The logic is sound, up to a point.
My dog is 33.2541% overweight …
Putting a price on ecosystems is like trying to find out exactly how overweight your dog is before you decide what to do about it. If the canine is too fat, it is obvious that a diet is required. Knowing precisely how overweight Rover is won't tell you anything you don't already know; it just puts a figure on it.
Equally, we don't need to know in dollars, pounds or renminbi how valuable natural capital and natural productivity is in order to tell us that we should behave more sustainably. We should already know that because of the manifest global impacts produced by our current industrial and economic models.
As attractive and possibly useful as highlighting the economic value on ecosystems might be, challenges remain. The most significant of which is the problem of price and how it is derived. Price mechanisms used by financial markets simply don't have to recognise the sustainability or otherwise of an asset. Ecosystem valuation will not change that; it is the price mechanism itself which needs to change.
We know the natural environment is the source of all financial value. Put crassly, the value of natural capital in financial terms is the sum of any financial activity in the world that there has ever been and ever will be.
There is no money without human beings capable of inventing and using it. There are no human beings without food, air and water.
Price versus value
So the real challenge is not the price of natural capital but its value, now and in the future. Financial markets need tools suitable for the job of valuing natural production and ecosystem health as assets capable of long-term value generation. They should evolve methods of compounding rather than discounting future value and develop the ability to value the private worth of common assets and goods. Without such financial innovation, natural value will fail to meet the challenge of economic price.
As Warren Buffett said; "Price is what you pay; value is what you get."
Joss Tantram is partner responsible for corporate sustainability at Terrafiniti LLP. He is the driving force behind Terrafiniti's R&D and innovation initiative Towards 9 Billion
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