24th February 2021 by Nick Silver
Recently, HM Treasury published a report on the Economics of Biodiversity by the economist Partha Dasgupta. This follows in the footsteps of the very influential Stern Review in 2006 on the economics of climate change, with the hope being that the Dasgupta Review can do for nature what Stern did for climate.
This also continues a debate about whether it is right to value nature at all. A very eloquent case against doing this was made by Guardian columnist George Monbiot in a 2018 article. Monbiot’s argument is that nature should be valued for its own stake, once you put a price on it you have lost the battle.
A decision on whether to conserve or destroy will be a purely cost benefit analysis and so if, for example, the monetary value of a forest is less than the price of chopping it down for timber, and to build a road, then it would get chopped it down.
Dasgupta’s report is not nearly as reductive as this version of valuing nature. Notwithstanding, I want to consider the more reductive position that Monbiot rejects – is it right to give nature a financial value? I have a lot of sympathy with Monbiot’s argument, but I would like to put a case for valuing nature.
At the moment, nature is given an economic value, it’s just often zero or negative (there are a great deal of subsidies for destroying nature, the Common Agricultural Policy being the prime example), so giving it a positive value is an improvement – the forest is less likely to get chopped down.
This aside, I want to go back to the Stern review plus an argument put forward by a climate lobby group, called Carbon Tracker, which has become very influential.
The Stern review, if you remember, put forward an argument that it would only cost 1 per cent of GDP to address climate change, but if we didn’t address it would do 5-20 per cent of GDP of damage. At the time I had a great deal of objections to this argument – that the cost figure was meaningless, GDP is the wrong measure, that it did not allow for extreme risks – which I won’t go into in detail (and, with hindsight, I was correct and Stern was wrong – but you just have to take my word for that!).
Even so, the fact that it was wrong was not the point; different spheres of human endeavour have their own language and narrative logic. To the non-initiate, the discourse employed by economics and finance might appear gobbledygook, and I wrote a book arguing that employed by finance is basically nonsense.
However, economics and finance have a great deal of influence on human affairs, and what the Stern Review did was put forward an argument in the language of economists (however sophistic this might be); so that the economics profession could start to meaningfully (for them) engage with climate, and climate considerations were inserted into economic policy narratives.
Carbon Tracker might be less familiar to the reader than Stern, but their influence may be greater. Up until recently climate was not a subject of interest to investors; ask a financial advisor about it and if they ventured any view at all it would be “if you want to do good it will affect your returns”.
What Carbon Tracker did is said right, if you investors worry about risk or return, are you seriously considering climate risk? The answer to which was “no”; this inserted climate into an investment narrative, which has been so successful that recently Black Rock, the world’s largest investor, has signed up to going net zero; a scenario that until recently would have been unimaginable.
I would like to live in a world where we value nature and well-being for their own sake, and we are not dis-proportionately driven by narrowly defined economic and financial considerations.
Yet the change in society needs to be considerable. I think of the discourse around valuing nature or the climate as like a virus, which have protein keys which allow the virus to infect cells so that they produce more viruses. The climate DNA has become inserted into economic and finance decision making DNA – the arguments are like the proteins which hack into the cells.
One of the consequences of the green hack into finance, is that the finance industry is engaged in widespread green-washing. But I think the climate hack has been valuable.
Rather than ignoring the issue, finance houses are all publicising how ‘green’ they are. When challenged that they are not doing enough, their past defence – “it’s got nothing to do with us” – does not wash as they have all publicly stated that they are part of the solution, so they have to take it seriously otherwise they are in serious danger of mis-selling.
After all, they are managing money on behalf of clients to whom they have made these claims.
If you asked me even a year ago whether I thought we would avoid catastrophic climate change, my answer would have been “no chance”. Now for the first time I am actually not so sure; and it is because of the Stern review and Carbon Tracker (and my own organisation Climate Bonds) that have hacked into the workings of finance and economic policy which has given the climate a fighting chance.
I hope that the Dasgupta review will do the same for nature, but I feel it maybe too little too late.