Banking On Nature: Why Natural Capital Needs To Be Valued

By Andrew Mitchell

Years ago, I used to hug trees and orangutans. Then I realised that I couldn’t save them that way. Because how do you save the world? You go after what rules it. So now I hug asset managers and bankers instead, and some of them are pretty big gorillas. Why? Because I believe that it’s time we assigned some real value to natural capital, and not just financial capital. If we don’t, we’re going to finance ourselves into extinction.

Money was not top of mind when I was young. From the age of seven, I wanted to be the next David Attenborough, after touching the fingertips of young orangutans through the bars at Jersey Zoo. What I had not planned on was David Attenborough living to be a fossil – albeit a very brilliant one – and so, with that TV niche gone, Tarzan seemed the next best option. I came closer to that one as a zoologist, with years spent strung up amidst the rainforest treetops, building aerial bridges between tree crowns and gliding across the canopy in hot air balloons. These were the richest and most unexplored places on earth and we learned that the forest canopy is as precious to the planet as the lining of our lungs is to you and me. It is where life meets the atmosphere.

As time went on, however, the joy of discovery gave way to disquiet and anger, as we bore witness to these places going up in smoke. Far from looking after it, the world was burning a vital organ – its green lungs. The indigenous communities I knew had swapped cotton loincloths for plastic shorts, blowpipes for mobile phones, and had been forced from the forest into a life of poverty in shacks, with days spent getting drunk on beer beside rapidly discolouring rivers. In one generation, their vast knowledge of how to live with nature had been replaced with a new knowledge: how to live without it. Like all of us, their children are becoming masters of manipulating ‘dead’ things to appear alive, such as cars or computers.

This conversion of land happened in Europe many years ago (just 2% of the UK’s landscape is covered in natural forest) and it’s happening in a vast area around the tropics now. As we entered the new millennium, I created a think tank to tackle the problem – Global Canopy – comprised of the best forest minds around the world. But nobody listened, and here’s why: Today, the world spends about $150 billion annually protecting nature. Most of the money comes from governments. But governments also provide huge subsidies to fossil fuel companies and even more to farmers and food companies. We all like cheap energy and cheap food. But the value of subsidies that harm nature is five times greater than all the money we spend to protect it. If you add in the tsunami of private-sector money swilling about that also harms nature, the ratio is almost 100:1. Little wonder then, that conservation constantly loses.

But here’s the interesting part. Whose money is it? The source of wealth in economies ultimately comes from the labour of people. Among governments, it’s called taxes; in the private sector, it’s profits; and for the individual saver, it’s called a pension. Most of us have bank accounts too. But when was the last time you asked your bank, “what are you doing with my money?” If you have a pension, did you ever ask the person who manages it if the investments they hold on your behalf are nature negative or nature positive? Or, put simply “do you invest in fossil fuel companies or companies causing deforestation?” If you were to ask them, you’d most likely be met with a look of shifty discomfort or confusion. Why? Because they wouldn’t have a clue.

Since I began hugging asset managers and bankers, I have discovered that managing large piles of money is a bit like driving a car. In the 1950s, most car dashboards had a speedometer and a fuel gauge, and a temperature gauge if you were lucky.  Today, modern cars have a galaxy of technology all designed to keep you safe including tire pressures, navigation aids, and bumper beepers. In some, you can even take your hands off the wheel. Where natural capital is concerned, for those driving our money it’s still like the 1950s. Most companies simply measure their health by how fast they are going, and how much petrol they have in the tank. The result? Without the right data on their dashboard, they roll over a lot of things in the name of growth, the biggest of which is nature.

Three quarters of the financial decisions in the western world are made with the help of a software terminal named after a famous former New York mayor, Michael Bloomberg. A decade ago, I looked inside one, and it was like entering an Aladdin’s cave of data. The quality and depth of information on CEOs, company results, and predicted profits was mind blowing, like sifting through the millions of iridescent insects that glitter in the forest canopy. Inside these terminals is everything a fund manager needs to know about the movement of financial capital. But the more I looked, the more I realised something was missing. Natural Capital. I realised that the true cost of their buying and selling decisions – that which it would have the continued existence of our planet – was nowhere to be seen. 

Let’s look at what this means. You go into your local supermarket armed with your shopping bag and come out with a crazily discounted chicken, shampoo and organic carrots. How come the chicken was so cheap, the shampoo so bubbly and the carrots so insanely expensive? It’s because we live in a world of fake prices, where the true costs of production can’t be seen in the price tag. The chicken might have come from an industrialised chicken farm in Thailand that relies on soy imported from Brasil to feed the birds – soy driving deforestation in the Cerrado bushlands in the south of Brasil. Appallingly crowded conditions needed to make chicken cheap spike the need for antibiotics to dampen disease and viruses but these have now become supercharged leading to explosions of bird flu. The neatly wrapped meat that survives then has to be shipped across the world, in turn creating carbon emissions. It’s the same for the shampoo. The palm oil inside creates nice bubbles but its production has driven decades of deforestation across South East Asia. None of these costs are reflected in the price of either.

We therefore live in a world of private profits and public losses. The cost of all these ‘nature negative’ outcomes is not in the price we pay at the till, nor is it in the share price showing up on a fund manager’s computer screen. It’s what economists call an ‘externality’. A palm oil company, therefore, appears super profitable. It’s a ‘buy’ for your pension fund. But, what about the carrots? How strange is it that food that is good for our bodies, like organically grown produce, is expensive and food that is bad for our health is cheap? The truth is, being ‘bad’ pays. Cheap food is produced by turbocharging nature to deliver hectares of high productivity, but it exhausts the soil. Organic food and regenerative farming, which repairs the soil, is less productive per hectare so is more expensive. But if you added in the costs of exhausting the soil and its associated carbon emissions, it would be the other way around.

So, what’s being done to redress the balance? Well, a decade ago I said to the folks at the Bloomberg terminal that one day they would have the vast amounts of ‘data for nature’ they needed. Soon after, we had the Water Valuation Risk Tool (WVRT) up and running to help companies manage risks associated with their use of water worldwide (ask your finance friends to look for it) and today, Bloomberg terminals also have the concentration of CO2 in our atmosphere on their home page. In 2015, alongside the Paris Agreement on climate, Michael Bloomberg and Mark Carney, then Governor of the Bank of England, launched a task force on climate so all companies and finance houses now have a framework to factor in the impacts of climate change on their portfolios. A Taskforce on Nature-related Financial Disclosure is also in the works too.

And in our personal lives? A first step could be to become carbon neutral, another might be to eat less meat, and third to begin to make our money matter. Each time we swipe a card, it’s an opportunity to do the right thing. We are not all there yet but in this generation, taxes will shift from ‘goods’ to ‘bads’. Regulators will shut down pollution that cuts short human lives, and this can happen fast. The cost of electric cars will plummet. Renewables will dominate energy supply. What I call “renewable food” will emerge, such as meat without meat and fish fed on insects eating waste, instead of anchovies dragged from the sea. Vertical farming in skyrises will help to free cities from supply chains that harm the earth. Microfibres from your plastic clothes will be replaced by organic fibres that dissolve in the ocean, rather than remain to clog ecosystems for thousands of years. Your pension fund will soon have a temperature gauge on it, so you can choose one that’s cool, not hot. Your bank will have to own up and disclose its footprint on nature, so you can decide to go elsewhere if you do not like how they are lending your money.

As COP 26 gathers, will we win? I am not sure. It could get worse before it gets better. Yet, I have seen more positive change in the last two years on these issues than in the previous forty. That should give us hope.

By Andrew Mitchell

Andrew is an international thought leader on tropical forests and climate change with over 40 years’ experience at the frontline of conservation policy in developing countries. He has founded or co-founded multiple environmental initiatives including the Earthwatch Institute Europe, the Global Canopy Programme, the Forest Footprint Disclosure Project (now CDP Forests), the Natural Capital Finance Alliance and, most recently, Equilibrium Futures, which helps the financial sector rebalance its impacts and dependencies on natural capital. Andrew is also the founder of the ‘Don’t Mess With Nature Podcast’, which examines the collective blindness among regulators and within the financial sector of the global economy’s dependence on biodiversity.