It turns out that natural systems are life support systems. They’re not ‘parks’ or ‘open spaces’ or ‘amenities’, but the places where living things do stuff that purifies water, that creates the soil that gives us crops and that keeps the climate stable. Ecosystems are worth money.
For business to turn in a competitive financial performance in a manner that is aligned with natural systems there has to be a price for damaging them, but also a profit from their protection and restoration.
Capitalism is really not that complicated; it’s like a dog running after a bone. If you throw the bone to the left, the dog goes to the left. If you throw the bone to the right, the dog goes to the right. We need to reward investment and behavior by creating structures that pay for every unit of protection and improvement in the Earth’s natural systems. We need to throw the bone in the direction we want to go.
Those of us in the 'ecosystem services business work on structural solutions that allow businesses to stop playing defense - worrying how they will comply with increasingly tough government regulations or make deals with increasingly smart and capable conservation and environmental groups – and start developing a competitive advantage in environmental performance.
There are many who are now taking bold, creative steps to ensure their own prosperity and the preservation of the natural world on which we all depend. But many of these steps from ‘environmentalism’ to ‘sustainability’ remain out of sight from the public. It’s partly because of the clunky way we’ve described them. The ‘Forestry Protocol of the California Climate Action Registry’, ‘Mitigation Banking and Section 404 of the Clean Water Act’, and ‘Total Maximum Daily Load trading’ all lack a certain zip from a marketing perspective.
Yet these programs are truly government innovations that create new markets and incentive programs to align profit and natural systems in remarkable ways. They have been developed with the support and tremendous intellectual contribution of environmental and conservation nonprofits. And they are allowing investment in climate, water and biodiversity, throwing the bone in the right direction.
As these programs have developed, I’ve followed the opportunities they’ve created by co-founding, as part of a team with the unlikely name Katoomba Group, the first global information website on these markets – Ecosystem Marketplace. Most recently I’ve co-founded, with the help and leadership of two extremely capable partners, a private equity fund to invest in ecosystems. I still enjoy thinking and writing and speaking about these new markets, but most of my time is now spent putting theory into practice.
We’ve raised an initial round of capital, and we’re delivering a solid risk-adjusted market rate of return by buying land, protecting and restoring specific ecosystem functions that produce clean water, climate protection and biodiversity habitat. We get paid because the clunky sounding programs mentioned above, and a host of others, allow business and development to offset the impacts of their activities by purchasing credits from others who have invested private dollars on private lands for public benefit.
We protect every piece of land we buy with a permanent conservation easement, just like conservation groups do, and we invest in the restoration of streams, wetlands, forests and habitats for endangered species too. But because the new markets allow us to make a return on investment, we don’t have to rely on gifts or grants; our capital comes from serious private and institutional investors.
This kind of market creates a price that reflects what nature does for us.
Still, the first reaction from many people is: “Is it really right to put a price tag on nature?” Sadly, it’s too late to ask. We already know what trees are worth if we cut them down. We know what land is worth as real estate and what the water is worth if we use it to grow crops. But ironically, the value of nature has been a minus on the balance sheet.
Science has been telling us for years that biodiversity is wonderful and valuable, but if you find an especially rare plant or animal on your property it prevents economic use of the land and even creates obligations. The trees are worth nothing if you leave them standing and the water is worth nothing if you leave it in the stream.
But the scientists are right about the value of biodiversity for very practical reasons. Diversity provides the resilience our life support systems require, especially as they get stressed by the impacts of our numbers and our needs. And they’re right about the value of the standing trees and the water in the stream too.
The new markets for ecosystems described in this book are ingenious because of how they take advantage of the new supply and demand for nature and what it does. The more good that’s created, the more money is made.
Whether we like it or not, we’re in the Planetary Management business. We are now responsible for natural systems everywhere, and we must provide the right incentives so that we can change our behavior more quickly and more effectively.
If a farmer can make more money from his acre of land by cutting down the trees and planting soybeans on that acre, the trees will, in fact, be cut down. If a fisherman is paid by the ton for his fish, it is in his interest to catch as many fish as he can. If a utility company is paid by the kilowatt hour, it is in their interest for you to leave your windows open in the wintertime.
We’ll continue to need real penalties for bad behavior. But now we also need to do far more. We need to recognize the new realities of supply and demand and act to align financial value with our values.
