Natural Capital Investing

Plenty of companies have found ways to make millions from what’s underneath the earth. And the importance of minerals and hydrocarbons to the modern international economy brings along a need to assign monetary value to resources that are, in their natural state, buried.

Then there’s another world of above-ground riches like timber, flowers, animals and even mountain air that find their way to market just the same, but without a clear, global system for pricing what is removed and sold.

The United Nations is now in the process of creating the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IBPES) to address the challenge of measuring and monetizing the most uncommon natural resources.

While oil, trees, water and even carbon dioxide can be found in enough places to ensure a continuing exchange of money for each commodity for several decades (though not indefinitely), animals and plants are gone once they’re gone.

The International Union for Conservation of Nature says that 2% of the 48,000 species listed as verging on extinction in 2009 were in fact already extinct in the wild. This points to the difficulty of measuring finite populations of flora and fauna and in turn valuing them for their uniqueness.

The task now at hand for the IBPES is basically to convey that biodiversity is a concept almost opposite to the notion of commodity. A commodity is by definition the same no matter where it comes from or who produces it. The same can’t be said for areas of rainforest where each acre could hold thousands of species of what would normally be called the same insect.

So while countries like Indonesia are being paid billions of dollars not to destroy forests that counteract carbon dioxide buildups, the burgeoning market for emissions trading does not address extinction or ecosystem destruction that isn’t overtly tied to the oxygen-carbon scrubbing cycle.

The UN estimates that between $2 trillion and $4.5 trillion in damage is done to “natural capital” each year, which at the upper end would exceed the yearly economic activity of every country but the United States, Japan, and China.

And it’s not that no one stands to lose from the eradication of unique species...

Even the most mundane medicines come from plants – take Aspirin for example. Ancient Greeks first figured out that the bark of willow trees could have pain-killing powers when ingested, but it wasn’t until 1828 that the active ingredient was isolated for easy pharmaceutical use. Now consider the biodiversity of a tropical rainforest and its host of potential billion-dollar miracle cures, and it becomes clear that the un-commodities the IBPES is looking at are less like oil or coal and more like real estate, which can vary in value wildly based on location.

The European Commission – the European Union’s executive body – announced on July 13 that it has undertaken a major initiative, The Economics of Ecosystems and Biodiversity (TEEB), to tackle core questions of value. The TEEB’s research faces abstract monetization issues also being confronted by Internet companies like Facebook and YouTube.

If it’s out there and isn’t owned in a traditionally capitalist sense, what’s it worth and who gets paid?

The earth may not have intellectual property lawyers on retainer, but the UN has named 2010 the Year of Biodiversity, and the United Nations Environment Programme is using TEEB’s November, 2009 report Responding to the Value of Nature a keystone in its efforts to establish active environmental stewardship as a more realistic course of action for businesses and governments.

Among the top recommendations of TEEB may be a Green Development Mechanism that parallels the UN climate change emissions trading system, and several tax incentive structures that will credit public and private initiatives for preserving biodiversity.

You can learn more about the initiative at http://www.teebweb.org.