Top economists from Oxford University have this week warned of the danger caused by Ministries of Finance and Treasuries ignoring their dependence on nature, which is in a perilous state of decline, and the potential for businesses and politicians to miss the increasing systemic risks as the natural world around us fails.
The report, The wealth of nature: Increasing national wealth and reducing risk by measuring and managing natural capital, considers the linkages between natural capital — i.e. nature — and human prosperity, and finds “that the erosion of natural capital poses threats to continued national and global prosperity, yet political and economic systems are unprepared for responding to that risk for three reasons.”
The Oxford economists highlight the fact that “natural capital is not being accurately measured or valued in the context of ecological tipping points and thresholds.” Secondly, aggregate economic models are not currently equipped to properly see the dependencies between “capitals” — specifically, according to the report, “most cost-benefit analyses and economic methodologies used in everyday decisions assume that natural capital can be easily substituted by man-made capital, when in fact it cannot.” Finally, the authors of the report claim that “we lack appropriate political and economic institutions to manage natural capital effectively; even national wealth accounts provide an incomplete picture of the value of natural capital.”
“Much of the value that economies create is built upon a natural foundation — the air, water, food, energy and raw materials that the planet provides. Without nature, no other value is possible,” said Professor Cameron Hepburn, who led the research at the University of Oxford’s Institute for New Economic Thinking at the Oxford Martin School.
“We are poisoning the well from which we drink,” added Oliver Greenfield, convenor of the Green Economy Coalition, who commissioned the research. “The dire state of nature and the implications for our future, barely registers in economic decision-making. To put this another way, we are building up a big systemic risk to our economies and societies, and just like the financial crisis, most economists currently don’t see it.”
The economists highlight the increasing extreme weather events, mass extinctions, falling agricultural yields, and toxic air and water levels as proof that we are systematically damaging the global economy — considering that pollution alone costs $4.6 trillion each year.
However, the economists find encouraging signs that “our economy can be rapidly rewired to protect the planet” and outline “two key opportunities” to engage the three aforementioned challenges. Firstly, all natural capital — both minerals, resources, and fossil fuels, as well as valuable ecosystem assets and natural infrastructure — could support greater prosperity if it were better valued and therefore more efficiently used. Secondly, “governance regimes based on scientifically informed political decisions should protect critical natural capital,” including such things as stable climate and well-functioning ecosystems. Such critical natural capital stocks should be informed by biophysical limits, potential irreversibility, thresholds, and the potential risks to essential life support functions.
“The opportunity to properly value nature is not just a task for economists but for all of us,” Oliver Greenfield added. “The societies and economies that understand their dependency on nature are healthier and more connected, with a brighter future.”
The full report (PDF) includes a total of 10 recommendations to better manage natural wealth and asks the question, “Can we increase prosperity and reduce risk by managing natural capital?”