Why Ecosystem Economics Could Fuel Nature-Positive Investment

The Biden Administration is looking to bring ESG to the centre of all US governmental decision making.

Sun 24 Sep 23


If a tree stands in the forest, and there’s no economist around to tabulate its benefits to humans, do those benefits still exist? 

To date, the answer has been “No”, but the US Government, driven by President Biden’s green agenda, is poised to change that. 

Thanks to an ‘accounting for ecosystem services’ guideline, which the Biden Administration circulated for public comment, the US Government could recognise, for the first time, environmental impacts in all cost-benefit decisions.

According to James Goodwin, a senior policy analyst for the US Center for Progressive Reform, the guideline could bring ecosystem accounting front and centre across more than US $10 trillion of governmental decision-making.

In 2019, Lars Hein spoke of combining the environment with economics as part of Natural Capital Accounting. Footage courtesy of @TedX.

“Imagine that the Department of the Interior is considering a rule that would make harvesting timber from public lands easier,” he told the Hill.

“Historically, the agency’s analysis for that rule would have accounted for the economic benefits of the harvested timber — namely, the commercial value of the products that they might generate and the jobs that might be created.”

However, he said the analysis would not have accounted for “the value of all the ecosystem services that would flow from leaving the trees in place, such as their impact on drinking water supplies or their ability to sequester climate-destabilising carbon pollution.”

“When a cost-benefit analysis fails to account for important impacts like these,” he said, “it’s equivalent to treating them as if they are worth nothing.”

“And while we may not know exactly what a stand of forest’s drinking water or carbon sequestration services are worth, we can be sure they are worth something more than $0.”

The practical upshot, he said, is that the failure to account for ecosystem services in regulatory analysis contributes to a skewed overall picture of regulations. 

“The Department of the Interior might still proceed with the hypothetical rule, even after accounting for the forest’s ecosystem services. But at least we would know what we’re giving up in exchange for the commercial products and jobs that might be created.”

The new guideline is part of President Biden’s green agenda.

As reported last month, almost half the world’s economic activity is moderately or highly dependent on nature and its services. In Australia, $896 Billion – or just under half of its total GDP – depends on ecosystem services.

According to Madeline Combie, Megan Evans, and Nathaniel Pelle, this is a significant risk for investments and superannuation funds, with institutions exposed to hidden financial troubles because of nature loss.

Last week, 40 of the world’s largest financial institutions backed new standards to make financial investment ‘nature-positive.’

In Australia, the Big Four plus Macquarie are pushing the federal government to include the new standard in the soon-to-be-released “sustainable finance” agenda with ecosystems a vital consideration.

In addition, they are demanding action on biodiversity, deforestation and land clearing as part of a general push to ensure that nature “is considered alongside financial, operational and climate risks.”

The Wood Central publisher spoke to Responsible Wood, who, for the first time, will allow ecosystem service certification under the joint Australian and New Zealand Standard for Sustainable Forest Management (AS/NZS 4708).

Responsible Wood is the first PEFC-aligned standard to allow ecosystem certification, with certificate holders now claiming “the full range of values and benefits which forests provide to society, not just responsibly sourced forest products.”

Under the changes, Responsible Wood certificate holders like Tasmanian-based Forico can claim ecosystem services as part of their sustainable forest management certification.

The joint Australian and New Zealand Standard, published in September 2021, “supports the responsible management of ecosystem services and allows for the verification, quantification and certification of such services.”

“The standard was developed as a management system standard for forest ecosystems as a whole and intended to allow the certification of the full range of values and benefits which forests provide to society, not just responsibly sourced forest products,” Responsible Wood said.

While Mr Goodwin said there is much to with the guidance circulated, “there is nonetheless improvement.”

“First, the guidance rightly acknowledges that limited data may prevent agencies from obtaining a full quantitative or monetised accounting of ecosystem services. But it also fails to prepare agencies for the ethical challenges this analysis might raise: It would be ethically inappropriate, for instance, to try to capture something like the value that subsistence fishing provides to indigenous communities in dollars and cents terms.”

“Second, the proposed guidance fails to acknowledge the overall limits of what can be accomplished by accounting of rules’ ecosystem-services impacts. After all, the real value of an acre of wetland is much more than just the sum of the ecosystem services it happens to provide. Unless the guidance grapples with this limitation, it risks reinforcing the bias of cost-benefit analysis that it was meant to address.”

He said the Biden Administration can correct these and other shortcomings. Nonetheless, the lessons the proposed guidance offers now are essential for providing a better analysis of those rules. 


  • Wood Central

    Wood Central is Australia’s first and only dedicated platform covering wood-based media across all digital platforms. Our vision is to develop an integrated platform for media, events, education, and products that connect, inform, and inspire the people and organisations who work in and promote forestry, timber, and fibre.


Related Articles