In a world where over half of global GDP is intrinsically linked to nature, the concept of ‘nature markets’ has emerged as a critical avenue for conserving biodiversity and promoting environmental sustainability. However, the evolution of these markets is not without its challenges. How can we ensure that their development results in positive outcomes for both nature and the economy?
Redefining Our Relationship with Nature
The Taskforce on Nature Markets, a diverse coalition representing policymakers, the private sector, civil society, and Indigenous communities, aims to establish a comprehensive governance framework that integrates nature into the global financial architecture. Their vision challenges the conventional wisdom by positing that “100 percent of today’s global economy is 100 percent dependent on nature.”
Paul Dickinson, co-founder of CDP, the world’s largest environmental disclosure system, echoes this perspective, likening the global economy’s dependence on nature to a spaceship’s reliance on its life support system. In his view, he reflects that 100 percent reliance.
Historically, nature has been undervalued and overexploited. However, with mounting political and economic interests recognizing the risks associated with nature and biodiversity loss, such as supply chain disruptions and commodity price volatility, the time has come to shift the paradigm.
The Promise of Nature Markets
Building on this growing interest, the Taskforce on Nature Markets has published recommendations to guide the development of “nature markets.” These markets have two key objectives:
- Proper Valuation of Nature: They aim to accurately price natural resources, including ecosystem services and natural assets, ensuring that their impact on the global economy is fairly represented.
- Nature Conservation and Restoration: Nature markets support investments that protect and restore natural processes, ecosystems, and species, a concept often referred to as “nature positive” in business circles.
The financial mechanisms associated with nature markets can be categorized into four segments:
- Intrinsic Markets: These markets facilitate the trade of resources extracted from the natural world, encompassing both hard commodities (e.g., gold, rubber, oil) and soft commodities (e.g., corn, wheat, coffee), as well as payments for ecosystem services.
- Asset Markets: Asset markets involve the trading of rights to use an entire ecosystem asset. For instance, institutional investors invest in timberland through funds, while real estate investment trusts (REITs) invest in forestland for the production and sale of forest products.
- Credit Markets: Credit markets have emerged for carbon removal or avoidance and are now extending to biodiversity restoration. Examples include the United Kingdom’s habitat banks, with the European Union also exploring similar concepts.
- Derivative Markets: These markets deal with financial products that directly reflect ecosystem values and are traded on futures exchanges, akin to the Chicago Board of Trade.
The Role of Policy and Governance
Ensuring the success of nature markets cannot be left solely to market forces. The Taskforce on Nature Markets emphasizes the need for robust political and policy actions. Governments must commit to legal frameworks that promote nature preservation and regeneration, guiding the investment practices of financial institutions operating within their jurisdictions.
At a time when some regulators are ceding their roles to corporations, the challenge lies in striking a balance between corporate autonomy and government oversight. This balance is exemplified by the work of the Taskforce on Nature-Related Financial Disclosures, which is advancing corporate reporting guidelines akin to those for carbon disclosures.
The task force is also candid about the difficulties of measuring projects or investments aimed at addressing nature or biodiversity loss. While financial markets have established metrics for carbon emissions and clean energy technologies to combat climate change, similar frameworks for nature preservation are still evolving.
Despite these challenges, the Global Biodiversity Framework, adopted at COP 15, underscores the critical role of public finance and mechanisms such as payment for ecosystem services and biodiversity offsets in protecting 30 percent of the world’s terrestrial and marine environment by 2030.
Breaking the Cognitive Dissonance Barrier
The most significant obstacle facing the success of nature markets is the collective cognitive dissonance that impedes policymakers and market participants from driving fundamental change. Rather than focusing on incremental adjustments to immediate threats, there is a need for bold, systemic transformations to ensure the long-term sustainability of both nature and the global economy.
The emergence of nature markets represents a pivotal moment in our quest for environmental sustainability. By redefining the relationship between nature and the economy, these markets hold the potential to address the urgent challenges of biodiversity loss and ecosystem degradation. However, their success hinges on a harmonious interplay between market forces, robust governance, and a collective commitment to transformative change.
