Pricing The Planet: Can Valuing Nature As An Asset Save Our Ecosystems?

By Lily Maxwell-Lwin, Commonland

As ecosystems degrade at an alarming rate, humanity must find new ways to value the natural world so it isn’t lost forever. Some economists and environmentalists say that to protect nature, we must put a dollar figure on it. At the heart of this approach lies the belief that valuing the environment in monetary terms will incentivize investors and funders to channel much-needed cash into Earth-restoring—rather than Earth-destroying—activities.

Critics say this approach doubles down on the underlying cause of ecosystems’ destruction: humans’ perception that nature’s gifts are mere resources for our unimpeded use. But while commodifying nature in this way might appear problematic, the reality is that finance needs a redirect—and fast. Global financial flows totaling $7 trillion are estimated to fuel the climate, biodiversity and land-degradation crises. That includes private-sector investment into such key nature-negative industries as construction, electric utilities, real estate, oil and gas and agriculture, as well as harmful public-sector subsidies into agriculture, fossil fuels, fisheries and forestry. Meanwhile, the funding gap for nature restoration remains immense: To meet global climate and nature targets, financing for nature-based solutions must nearly triple from current levels to $542 billion per year by 2030.

As Alejandro Díaz, finance lead at landscape restoration organization Commonland, highlights, “Redirecting funds toward nature has never been more essential. As climate change accelerates and its impacts are increasingly evident, we must invest in the resilience of the ecosystems that we—and the global economy—rely on.”

Could valuing nature as an asset class—something that can be invested in financially—be the way to save it?

How much is nature really worth to us?

By placing an economic value on the environment, it’s possible to see just how much nature’s services are worth to us as a species (hint: they’re worth a lot)—and how much ecosystem degradation costs us in contrast—in ways that financiers and the public can understand. For instance, restoring biodiversity-rich land across 10% of Europe’s territory could cost more than $167 billion. But this investment would generate benefits valued at around $2 trillion, resulting in a cost-benefit ratio of 1:12. Economic studies also show that the financial benefits of restoring all types of ecosystems are eight to ten times greater than initial investment costs. These include benefits like enhanced food production, carbon sequestration and storage, and improved water quality and cycling.

The financial benefits of restoring all types of ecosystems are eight to ten times greater than initial investment costs.

By applying these valuation methods to specific sectors, we can begin to understand how nature degradation affects core industries that underpin societies—namely those related to water, food and energy.

For example, soil degradation costs EU farmers an estimated $1.35 billion annually. When we place this in the context of recent farmer protests (fueled by farmers’ ongoing woes around slim profit margins), investing in nature-positive agricultural practices that restore nature and remediate soil erosion should be at the top of every agriculture ministry’s and agri-food company’s agenda. Why? Because these practices reduce or eliminate the need for high-cost, nature-negative inputs like fertilizers and protect farmers' yields over time by keeping ecosystems healthy in the long term.

By making activities contributing to degradation quantifiable, decision-makers in both the public and private sectors can make better-informed choices that account for the long-term economic (and other) consequences of environmental degradation. For example, incorporating the financial costs of carbon emissions into decision-making models might make investing in a highway less appealing.

Payment for ecosystem services is one way to incentivize nature conservation by paying communities, farmers and others to manage land sustainably. With this model, those who benefit from nature's services—like water and air purification, waste treatment, pollination and healthy soils—pay those whose lands supply these services.

Costa Rica offers a good example of such a model. Its Payments for Environmental Services (PES) Program, a financial mechanism that supports forest conservation, has gained acclaim for preserving biodiversity while promoting economic growth and social well-being. More than 18,000 families benefited from the PES Program from 1997 to 2019. This model provided a pioneering approach to environmental conservation and sustainable development by placing a significant emphasis on valuing the benefits provided by nature.

Seth Shames, the managing director of landscape action research organization EcoAgriculture Partners, says payments for ecosystem services must consider larger scales—like tens of thousands of acres in the area of a landscape—to be most effective. Diaz and Shames work together on transforming finance to benefit people and nature under the banner of the 1000 Landscapes for 1 Billion People initiative.

“Managing ecosystem services like nature’s provisioning of clean water and wildlife habitat only make sense at the landscape scale. This requires a different way of thinking about nature asset classes compared to traditional assets.” 

But despite its potential benefits, quantifying nature—and seeing it as an asset class—is not without pitfalls. As we’ve seen with certain market-based mechanisms that aim to drive finance into nature, like the voluntary carbon market, the promise is often more compelling than reality. As recent investigations revealed, offsetting projects don’t always make good on their claims, sometimes failing to deliver real “additionality.” Evidence showed that these projects didn’t result in more carbon sequestration than would have happened anyway. See John Oliver’s example of how one bank claimed carbon neutrality through offsets purchased in an area that was never even under threat of degradation.

Other carbon-offsetting projects have demonstrated flagrant disregard of community land rights. One case in the Amazonian rainforest, for instance, caught a corporate conservation project selling carbon credits from Indigenous land without consent. Removing power from local people threatens the long-term viability of restoration projects. Recent research into ecosystem management highlights that restoration efforts are most successful when local and Indigenous communities are in charge.

With the right parameters, nature as an asset class could be a helpful tool

If we think of ecosystem services as underpinning our economies, investing in them is a no-brainer. But, to have long-term positive outcomes, any investment should use a holistic landscape-scale approach that values nature as a complex network of ecosystems and puts the communities that protect them in positions of decision-making authority. Only when Indigenous peoples and local communities lead the way can classifying nature as an asset provide a means to close the nature funding gap while protecting the planet for future generations.

EcoAg’s Shames says this new way of thinking is potentially transformative for investors, businesses, rural people and the ecosystems they all rely on. But successfully investing in nature still requires significant research, financial innovation and a mindset shift to look at opportunities at the scale of landscapes.

“If we’re going to do the hard work of developing payment systems for ecosystem services, we need to make sure that the incentives they produce actually lead to meaningful improvements for nature and communities,” says Shames. “We need to think long and hard about what this money is used for and who should get it.”