Nature is a blind spot in economics that we need to fix

“Nature is a blind spot in economics”. This was the quote that grabbed my attention whilst munching my toast and distractedly listening to the Radio 4 Today programme earlier this week.

Sandwiched between endless (and tedious) news items about lockdowns, vaccination strategies, and the failures of track and trace – a gentle, polite and unassuming Indian-British economist in his late 70’s called Partha Dasgupta, calmly explained why global economic measurements are vastly incomplete, and how a failure to consider them would ultimately deliver mankind’s demise.

It is not as if this is news to us. After all, we have been hearing increasingly alarmed warnings from Sir David Attenborough (and many others) for more than a decade now. But to hear an economist applying accounting principles felt like a valuable new paradigm. He went on to point out that our economies, livelihoods and well-being all depend on our most precious asset, which is Nature. It is an asset, he asserted, because we rely on Nature to provide us with food, water and shelter; regulate our climate and disease; maintain nutrient cycles and oxygen production; and provide us with spiritual fulfilment and opportunities for recreation and recuperation, all of which enhance our health and well-being. He also noted that we also use the planet as a sink for our waste products, such as carbon dioxide, plastics and other forms of waste, including pollution.

This all set my mind racing. If Nature is an asset, then why do I never see it on a balance sheet, and why do we not value and measure its worth as we do with other assets? He was ahead of me of course.

“Nature is, therefore, an asset, just as produced capital (roads, buildings and factories) and human capital (health, knowledge and skills) are assets. Like education and health, however, Nature is more than an economic good: many value its very existence and recognise its intrinsic worth too.”

The Radio 4 interview was in response to the publication of review that presents the first comprehensive economic framework of its kind for biodiversity. Named “The Economics of Biodiversity: The Dasgupta Review” it calls for urgent and transformative change in how we think, act and measure economic success, to protect and enhance our prosperity and the natural world. Within his work Professor Sir Partha Dasgupta has set out how ecosystem processes are affected by economic activity and has proposed a new framework that sets out the ways in which we should account for nature in economics and decision-making.

The inevitable conclusion from this report is that if we want sustainable economic growth, we have to accept that our prosperity relies on rebalancing our demand of nature’s goods and services with its capacity to supply them. It also means accounting fully for the impact of our interactions with Nature across all levels of society. COVID-19, where land-use change and species exploitation were major causes of a global pandemic has shown us what can happen when we fail to do this.

At the heart of his argument is the premise that biodiversity is at the very centre of enabling Nature to be productive, resilient and adaptable. Just as diversity within a portfolio of financial assets reduces risk and uncertainty, so diversity within a portfolio of natural assets increases Nature’s resilience to shocks, reducing the risks to Nature’s services. Reduce biodiversity, and both Nature and humanity suffer.
“Nature is, therefore, an asset, just as produced capital (roads, buildings and factories) and human capital (health, knowledge and skills) are assets. Like education and health, however, Nature is more than an economic good: many value its very existence and recognise its intrinsic worth too.”

The report is packed with original thinking. For example, it frames everyone in the role of asset managers. Individuals, businesses, governments and international organisations all manage Nature’s assets through our spending and investment decisions. Collectively, however, we have failed to manage our global portfolio of assets sustainably. Between 1992 and 2014, produced capital per person doubled, and human capital per person increased by about 13% globally; but the stock of natural capital per person declined by nearly 40%. We are living on borrowed time.

Nature is open to all at no monetary charge. As a result, the true value of the goods and services it provides are not reflected in market prices. These distortions have led us to invest relatively more in other assets, such as produced capital, and underinvest in our natural assets.

So Dasgupta argues that Nature needs to enter economic and finance decision-making in the same way buildings, machines, roads and skills do. To do so ultimately requires changing our measures of economic success. As a measure of economic activity, Gross Domestic Product (GDP) is needed for short-term macroeconomic analysis and management. However, GDP does not account for the depreciation of assets, including the natural environment. As our primary measure of economic success, it therefore encourages us to pursue unsustainable economic growth and development.

The Review demonstrates that in order to judge whether economic development is sustainable, an inclusive measure of wealth is needed. By measuring our wealth in terms of all assets, including natural assets, ‘inclusive wealth’ provides a clear and coherent measure that corresponds directly with the well-being of current and future generations.

In the hospitality and foodservice sector, we are in the eye of the biodiversity storm. Food production is the most significant driver of terrestrial biodiversity loss. As the global population grows, the enormous problem of producing sufficient food in a sustainable manner will only intensify. Technological innovations and sustainable food production systems can and will decrease the sector’s contribution to climate change, land-use change and ocean degradation; reduce environmentally damaging inputs and waste; and improve production system resilience. But more will change within food production in the next 20 years than in the century before it – and believe me that is quite a statement.

After the Radio 4 interview I tracked down the report and read it in full. It is well worth the time:

Sustainability at times can have an almost spiritual fervour to it. There is nothing wrong with that, but we also need the kind of calm rationality that Dasgupta brings to the debate, and we certainly need to find a way to restore the balance between the myopic focus on GDP and our use of natural resources. This year’s climate summit in Scotland (COP26) is the world’s “last best chance” to avert climate catastrophe, according to US climate envoy John Kerry. With the UK government in the chair, expect Dasgupta’s thinking to be a key theme within the outputs.

David established supply chain consultancy Prestige Purchasing in 1998, since when it has become recognised as the thought leader on procurement and distribution within Foodservice sector. David has spoken at World Travel Market, Food Ethics Council Business Forum, and several Propel M&C Report events.