By Sian Sullivan
In July 2016, LCSV’s Professor Sian Sullivan was the discussant for a panel ‘Interrogating natural capital’ organised by Catie Burlando (IUCN Commission on Environmental, Economic and Social Policy) and Caroline Seagle (McGill University) at the conference Political Ecologies of Conflict, Capitalism and Contestation (PE-3C), Wageningen University, 7-9 July 2016. This post draws on her notes for the panel.
- To make; create.
- To construct by combining or assembling diverse, typically standardized parts …
- To concoct in order to deceive
Naturalising ‘natural capital’
At the World Conservation Congress (WCC) of the International Union for the Conservation of Nature (IUCN) in a few days’ time, Motion 63 on ‘Natural Capital’ proposes development of a ‘natural capital charter’ as a framework ‘for the application of natural capital approaches and mechanisms’. In ‘noting that concepts and language of natural capital are becoming widespread within conservation circles and IUCN’, and in seeking consensus on natural capital concepts, measurements and valuations, Motion 63 reflects IUCN’s adoption of ‘a substantial policy position’ on the theme of ‘Natural Capital’. Eleven programmed sessions scheduled for the Congress include ‘Natural Capital’ in the title. Many are associated with the recent launch of the global Natural Capital Protocol (NCP), which brings together leaders in the business community in order to create a world where business both enhances and conserves natural capital. At least one Congress session, entitled Matters of value: Natural capital, cultural diversity, governance and rights, seeks to open a space for expressions of concern regarding possible ‘unforeseen impacts of natural capital on broader issues of equitability, ethics, values, rights and social justice’.
It is certainly the case that the use of ‘natural capital’ as a noun indicating a fact that exists in the world is becoming increasingly normalised, even ‘naturalised’, in environmental governance. Natural capital initiatives arising in the last few years include the World Forum on Natural Capital, described as ‘the world’s leading natural capital event’; the Natural Capital Declaration (NCD), which commits the financial sector to mainstreaming ‘natural capital considerations’ into all financial products and services; and the Natural Capital Financing Facility (NCFF), a financial instrument of the European Investment Bank and the European Commission aiming ‘to prove to the market and to potential investors the attractiveness of biodiversity and climate adaptation operations in order to promote sustainable investments from the private sector’.
All these initiatives take ‘natural capital’ as an apparently exterior ‘matter of fact’, sharing definitions along the lines of that sanctioned by the UK’s Natural Capital Committee that ‘natural capital’ consists of ‘our natural assets including forests, rivers, land, minerals and oceans’.
It seems as though increasingly where people in the past might have spoken of ‘nature’ or ‘the natural environment’, what is now commonly invoked is ‘natural capital’. So what does the term ‘capital’ do to the category ‘nature’ when these terms are joined? What work does the metaphor nature-is-as-capital-is do in the world, and why exactly should nature be seen in terms of capital? And why is it that this particular fabrication is intensifying in this particular historical moment?
Clearly, the answers to these questions are multiple. In this post I focus on some particular and connected aspects of this fabrication, namely processes of commensuration (making different natures interchangeable), aggregation (focusing on total quantities over differences and particularities), and capitalisation (leveraging conserved ‘standing natures’ as capital assets).
Turning first to what is now a somewhat iconic calculative device in the making of nature as natural capital, namely the biodiversity offsetting metric published by the UK’s Dept. of Environment, Food and Rural Affairs (DEFRA). This device is designed to enable the combined scoring for a hectare of habitat of its qualities of ecological distinctiveness and its condition. Through this mechanism a value for a hectare of biodiversity habitat is generated as a numerical surrogate with a score of between 2 and 18. This numerical scoring makes different habitats in different places and temporal moments commensurate with each other. Application of the device permits scored habitat units lost through development-related transformation at one site to be ‘offset’ against investment in a similar number of units of conserved habitat somewhere else. The intention is to generate a measurable ‘no net loss’, or even a ‘net gain’ in total or aggregate biodiversity, even though a loss has been enacted through development impacts.
Appearing in DEFRA’s technical documentation in 2012, this device was designed by private sector consultants through a series of overlapping commissioned reports. A scoping study for DEFRA published in 2009 was followed by a long technical report published in 2010 by the European Commission and involving some of the same authors. Entitled The Use of Market-Based Instruments for Biodiversity Protection – the Case of Habitat Banking, this report was written by the UK-based Economics for the Environment Consultancy (eftec) and the Institute for European Environment Policy (IEEP). Eftec subsequently (2011) was involved in preparing a report for DEFRA called Costing Potential Actions to Offset the Impact of Development on Biodiversity. Its lead author was also the head of the Business and Biodiversity Offsets Programme (BBOP), an international consortium of international financial institutions, corporations – particularly in extractive industries – environmental Non-Governmental Organisations (NGOs) and government departments. This small institutional snap-shot provides an indication of the overlaps and entanglements of state and non-state actors and organisations at different scales working towards the design of market-based instruments (MBIs) for environmental protection, whereby business and biodiversity are considered to support each other.
The DEFRA biodiversity offsetting metric is one amongst different tools of commensuration that distil a perception that values for natures in different places and at different temporal moments are interchangeable with each other. It is also a tool whose use, in application, acts in the world so as to bring these commensurabilities into existence. The empirical questions then become, to what extent are these commensurabilities real or illusory? And to what extent is aggregated ‘no net loss’ or ‘net gain’ in nature value genuine or spurious?
Applying tradable scores to natures in different spaces and moments that can be exchanged in service to conservation is connected with a perception that these numbered natures can be managed in terms of aggregated or total quantities. A now familiar example is the use of caps in the management of carbon emissions. These affirm a logic of trading between sites of emission and sites of sequestration. The intention is to demonstrate reduced total carbon emissions beyond a counterfactual scenario without a carbon trade or offset.
In the UK at least, this logic is being extended into what is termed a ‘natural capital aggregate rule’, as proposed by the Natural Capital Committee (NCC) that since 2012 has advised government ‘on the sustainable use of natural capital’. The NCC advocates a target of incorporating natural capital losses and gains into national GDP accounts by 2020, so as to establish ‘a set of properly maintained and enhanced natural assets’ that are quantified. This set of natural assets is also associated with the attribution of monetary value for these assets. For example, in 2015 the UK’s Office of National Statistics, in partnership with DEFRA, produced an initial estimate of the ‘aggregate’, i.e. ‘total’, value of natural capital in the UK as approximately £1.6 trillion.
The natural capital aggregate rule states that it is the aggregate or total value of natural capital assets – as expressed through numbered and priced indicators – that should be maintained over time. Echoing calculations for biodiversity offsetting, as per the metric above, the rule thereby permits substitutabilities between different natural capital assets as long as ‘no net loss’ occurs in the overall balance sheet of indicators.
In other words, the aggregate natural capital rule is consistent with a weak sustainability perspective through which aggregate quantities can appear to be maintained, even though losses in specific nature quantities have occurred.
The figure below is the NCC’s schematic representation of natural capital trends in the UK, leading up to 2015 and thinking forwards towards 2040. It indicates a framing of natural capital in aggregate terms, which here can be equivalently signaled through either monetary or physical quantities, as suggested on the y-axis. An improvement in aggregate natural capital values from 2015 is desired – at least to reach no net loss, and preferably a net gain in values over time – above a counterfactual scenario of continuous decline in natural capital values.
One issue here is that the socio-economic causes of decline in ‘natural capital’, combined with the implications of considerable time-lags in the impacts of past actions, are little addressed in such representations and associated policy recommendations. Instead, marketised reward structures such as biodiversity offsetting tend to be proposed to incentivise developers and existing land-owners to shift their practices into green growth renderings. Scant attention is paid to the ecological debt experienced by broader society that at least in part has been generated by the historical production and appropriation practices often associated with these same actors. Significant environmental justice issues thereby remain in the conception and application of biodiversity offsetting and aggregate natural capital rules.
But further, there are conceptual and calculative problems with conceiving of capital in terms of aggregate or total values. When extended into biophysical domains, i.e. to so-called ‘natural capital’, these systemic issues generate a conceptual and measurement minefield. Economist Alejandro Nadal has worked this through in some detail, arguing that ‘the natural capital metaphor does not have rigorous foundations in economic theory’ and that it cannot provide ‘adequate economic measurements of what are supposed to be “nature’s assets”’. Clive Spash (with Anthony Clayton) and Molly Scott Cato (with Rupert Read) are other prominent economists who have made similar arguments through drawing on disciplinary debates within economics itself.
As these authors assert, a reason for why the metaphor nature-is-as-capital-is breaks down in economic terms is because the category ‘capital’, like the category ‘nature’, is incommensurably plural. This is even when restricting consideration of capital to physical and economic capital only.
Capital exists variously as:
- heterogeneous and not fully commensurable or substitutable physical factors of production such as machinery, fixed assets like land, etc., that on balance sheets also constitute liabilities with maintenance costs;
- the medium, i.e. money, through which factors of production might be valued, bought and sold and thus fabricated as substitutable through markets; and
- as interest-bearing assets that can accumulate financial value so as to generate flows of money dividends that can also be leveraged through credit/debt mechanisms.
To put it simply, often it is not clear whether the nature-as-capital metaphor is being invoked to affirm the maintenance costs of a natural capital asset, the possibilities of substitutabilities between assets (as in biodiversity offsetting), or the possibility of generating dividends from an asset. These dimensions of capital have different implications for how capital is valued and thereby treated and by whom.
To add complexity, prices for monetised assets are themselves not fixed: they shift relative to each other as well as to other conditions. This means that it is nigh on impossible to ever assert a stable value of an asset, and in turn means that any aggregated or total value is itself continually changing. In other words, any quantified and/or monetised aggregate or total value for ‘natural capital’, whilst perhaps instructive in an indicative sense, begs understanding as constructed on a series of problematic assumptions that may generate wildly misleading measures.
Approaching ‘natural capital’ as a potentially dividend-bearing asset that can be leveraged through credit/debt mechanisms is, however, becoming attractive. Led by financial services company Credit Suisse with the backing of international environmental organisations the IUCN and the World Wide Fund for Nature (WWF), a series of reports proposes capitalising conserved natures in situ in exactly this way. An intention is to scale-up conservation finance from institutional investors and Ultra-High Net Worth Individuals (i.e. the super-super-rich). Proposals are for the design of debt-based financial products serviced through payments arising through new conservation markets associated with conserved natures as natural capital assets.
In 2016, and following a 2014 report called Conservation Finance: Moving Beyond Donor Funding to an Investor Driven Approach, Credit Suisse and collaborators published two documents outlining proposals for debt-based conservation finance. The most recent is called Levering Ecosystems: A Business-focused Perspective on how Debt Supports Investment in Ecosystem Services. It opens with a 2015 quote from Mark Tercek, CEO of the environmental NGO The Nature Conservancy, who observes of emerging conservation finance deals that:
This reminds me of my Wall Street days. I mean, all the new markets – the high yield markets, different convertible markets, this is how they all start. First they start with one-off project financings, you do them one-by-one, you demonstrate how these products work, deals work, and then it grows into a much more liquid market where many people can participate in it at smaller dollar sizes. That’s what I think lies ahead for us.
This statement is followed by the CEO of Credit Suisse stating that not only is saving ecosystems affordable, but it is also profitable, if turned ‘into an asset treasured by the mainstream investment market’. The report proposes a number of mechanisms whereby ‘businesses can utilize debt as a tool to restore, rehabilitate, and conserve the environment while creating financial value’. The idea is that as ‘environmental footprints move closer to being recognized as assets and liabilities by companies, debt can be used to fund specific investments in ecosystems that lead to net-positive financial outcomes’. Debt-based financing – for example, through tradable securities such as bonds, or debt-instruments that finance a portfolio of aggregated conservation-oriented loans – is framed as attractive in part because interest received by investors is ‘usually tax-deductible’.
The Levering Ecosystems report followed quickly from Conservation Finance: From Niche to Mainstream – The Building of an Institutional Asset Class, steered by a small group including the Director of IUCN’s Global Business and Biodiversity Programme. This report estimates the investment potential for conservation finance to be roughly US$ 200-400 billion by 2020.
As noted above, a major focus here is the design of scaled-up conservation investments that attract institutional investors and (Ultra-)High Net Worth Individuals ((U)HNWIs) through financial products linked with emerging or predicted conservation markets. Of course, such investors loaning finance to projects associated with conservation also expect market-rate returns to compensate for investments considered to conserve, restore or rehabilitate ecosystems and associated ‘services’. As the Chair of UK’s Natural Capital Committee, Dieter Helm, states in a text offering cautious support for such debt-based financing for natural capital assets:
any investor in equity or debt is going to want an answer to the question: where is the money coming from to make the public environmental dimension into a defined revenue stream and hence make the project privately investable?
In the documents referenced above, returns are projected to materialise in part from new markets in the potentially monetisable ‘dividends’ of ‘standing natural capitals’ represented, for example, by billable ecosystem services and carbon. Investor risk is proposed to be reduced through mobilising such newly legible and leverageable assets, as well as the ‘land or usage rights’ from which they derive, as underlying collateral.
The graphs below present two schematic diagrams redrawn from the texts referenced above to indicate how these flows of value will be ‘leveraged’ from natures capitalised as investable natural capital. These possibilities are perceived to be boosted through recent UNFCCC support for international compensation mechanisms that ‘balance anthropogenic emissions by sources and removals by sinks of greenhouse gases’ (see UNFCCC Paris Agreement 2015, Article 4.1). Such mechanisms are expected to release new long-term sources of additional public funding (although it might also be noted that to date only 23 of the 180 signatories to the December 2015 Paris Agreement have deposited their instruments of ratification, acceptance or approval, accounting in total for only 1.08 % of the total global greenhouse gas emissions; the agreement only comes into force when ratified by at least 55 Parties to the Convention, accounting for at least an estimated 55 per cent of total global greenhouse gas emissions).
It is perhaps important to consider what these financing proposals might imply if applied to countries of the global south with remaining high levels of ‘standing natural capital’. Is it the case that such countries may become indebted to ultra-high-net-worth investors who will access returns on their investments from new income streams arising from these conserved tropical natures? If so, it is unclear what safeguards will be in place to prevent debt financing structures for natural capital conservation from exacerbating existing processes whereby people, especially in tropical landscapes, sometimes are forced from land and livelihoods as standing ‘natural capital assets’ become able to generate monetisable dividends. For these contexts, some of which may be perceived by those living there as managed under common property arrangements, it is also unclear who or what the ‘firm’ is that would be able to sell bonds representing natural capital value for the receipt of private investment.
In addition, it seems appropriate to maintain a healthy skepticism in considering motivations for enrolling conserved natures more firmly with financial markets. Credit Suisse itself has recently been fined by upwards of US$ 80 million for violating securities law and gaming markets through ‘dark-pool’ trading practices. It is not at all clear that aligning ‘standing natural capitals’ more closely with a financial world that can often seem rather murky is good either for ‘nature’ or for peoples living in landscapes that may become valued for their dividend-producing natural capital assets. And, of course, there is nothing to prevent returns on natural capital investments from being spent on things harmful to the natural world in other contexts.
As with other processes of propertied asset creation and capture, proposals for creating investable natural capital assets of conserved natures are based on possibilities for profit generation by high net worth individuals and institutional investors. Through such structures, investors may become able to assert ‘virtual ownership’ of large blocks of newly investable stocks. Such moves, nascent and clunky as they may be, generate concern that in some of its aspects natural capital conservation may fail on distributive, procedural and recognition justice grounds. At the least, they build on an assumed sustenance of capitalist trajectories that entrench highly inequitable relationships in both social and environmental arenas.
Is conserving ‘natural capital’ the same as conserving ‘nature’?
In 1986 the central secretariat of the well-known international environmental NGO WWF decided to change the name of the organisation from the World Wildlife Fund to the World Wide Fund for Nature. The thinking was that an emphasis on ‘wildlife’, borne of a concern for endangered species, no longer reflected the organisation’s scope of work for the conservation of the diversity of life on earth. It was considered that overall the organisation would be better served by the term ‘nature’ as opposed to the term ‘wildlife’. In other words, it seems that naming and framing ‘nature’ matters.
These notes are intended to add to debate regarding the current and consolidating naming and making of nature as ‘natural capital’. What does this renaming do to how natures are conceptualised and approached, and whose interests does the remaking of nature as capital serve? Importantly, how is our ability to encounter other-than-human natures in their multiplicitous and wonderful differences affected by a tendency to see everything through the lens of capital?
Given the conversations about to take place at IUCN’s World Conservation Congress over the next few days, it seems important to ask: how exactly does the conservation of natural capital equate with the conservation of nature? Do these terms in fact invoke different things? If they do, then it is worth clarifying whether the conservation of natural capital is always good for the conservation of nature. If they don’t, then it remains worth querying why exactly ‘nature’ needs to be renamed as ‘natural capital’.