The banker trying to put a value on nature
Pavan Sukhdev is pushing to create an accounting system that will force companies to assess the damage they're doing
• Puma aims to put a value on its environmental impact
• The world has changed – business must change too
• Placing a price tag on nature is the best way of saving it
It's particularly refreshing to meet a senior banker concentrating his efforts on preserving our natural ecosystems and biodiversity rather than hastening their demise through irresponsible lending.
Pavan Sukhdev, who served on the board of Deutsche Bank's Global Markets Centre in Mumbai and headed up the groundbreaking Teeb(The Economics of Ecosystems and Biodiversity) report, is doing for nature what Sir Nicholas Stern sought to do for climate change – putting a value on it.
Teeb, developed under the auspices of the United Nations environment programme, was designed to highlight the growing costs of biodiversity loss and ecosystem degradation, and to draw together expertise from the fields of science, economics and policy to enable practical actions moving forward.
While it was published only last summer, Sukhdev says it is already starting to gain traction. He welcomes Puma's announcement this week of the creation of an environmental profit and loss account, the first corporate to do so.
He also points to last month's launch by the World Bank's Wealth Accounting and the Valuation of Ecosystems Services (Waves) project.
The objective is the "greening" of national income accounts, as they constitute the primary source of information about the economy, such as GDP, and are widely used for assessment of economic performance and policy analysis in all countries.
Sukhdev says it will take three to five years to create a common methodology for national ecosystem accounting. India has already committed to creating green accounts by 2015 and Sukhdev says that Norway and Australia already have "outstandingly" good information to allow them to generate building natural capital into their accounts.
In some ways Sukhdev sees it as a failure of humanity that we should even be in a position where we have to put an economic value against the majesty of nature herself.
But he recognises that the predominance of urban living means we have become so disconnected from the natural world that the only way we can preserve it is to put a price tag on our forests, corral reefs and mangrove swamps.
"We have tried the argument about human beings being part of nature and the planet being our only hope," says Sukhdev. "We have played that movie a number of times but it has not generated the results we hope.
"The majority of the global population now lives in cities and are disconnected from nature; not just a physical distance but also an emotional distance. There are many people who think water comes out of taps and that milk comes from the supermarket.
"This disconnection is real so we have then got to speak the language of economics to show there is a connection. Just because nature comes free and is not a market, does not mean there is no value there."
An example Sukhdev gives to illustrate the value of our ecosystem is the coral reefs. Not only do they provide an income for local fishermen, but communities benefit from tourism and the shoreline gets wave surge protection. On top of that cures for cancer and Alzheimer's are being researched from species relying on the corral reefs. All that would be lost if they die.
Despite this knowledge, Sukhdev is exasperated by the inability of most politicians to force the pace of change that is needed to stop the further destruction of ecosystems and diminish the planet's biodiversity.
"Frankly, the days are gone when politicans were leaders," he says. "We are no longer talking about the Churchills and Gandhis of this world. Three-quarters of GDP and two-thirds of employment comes from the private sector, and all of their fiscal deficit is paid for by corporation tax. Politicians are beholden to the corporation."
Companies have also been slow to respond to the necessity of more accurately assessing the damage they are doing, which is not surprising, given that Sukhdev says the average horizon that a CEO scans in the UK is one to two years, while in the US that falls to three months to a year.
But he does believes momentum is building to place these costs on company balance sheets as a tiny but growing number of business leaders recognise that action is needed if their companies are going to survive and prosper well into the future.
"The saying is true that the most difficult thing is to create business momentum and the second most difficult thing is to destroy business momentum," says Sukhdev.
"This will not happen on its own, but society is starting to ask for this and business will wake up slowly to this need.
"The press has a moral duty to inform the people there is a problem. What now needs to happen is to get institutional recognition and that is where the accounting profession comes into play.
"It's not easy to do, but we need to create common measurements for each sector. It would be great, for example, to start with palm oil, given companies are already responding to NGO concerns in this area. Let's get a few companies who are in this space and willing to change to start disclosing and show how we manage impacts down."
Within the UK, Sukhdev is now leading the Teeb for Business Coalition, which is being established to continue developing the report's recommendations for the corporate sector.
The Institute of Chartered Accountants in England and Wales, together with a large coalition including WWF-UK, the Global Reporting Initiative and a number of companies, is convening to catalyse research and action on corporate externalities.
Where Sukhdev believes Teeb will perhaps have most impact in the long-term is in the understanding of the importance of protecting ecosystems in the alleviation of poverty in the developing world.
"There has always been a biased thinking that every time you try to attend to conservation it impoverishes people, but the broad economic analysis shows that this is not the case," he says.
"The GDP of poor households are heavily dependent on free flows from nature and if you end up depleting fresh water reserves or filling up wetlands you hurt the livelihoods of the poor and cause them a huge amount of insecurity."
He points to the fact that 350 million people in India draw between 50-90% of their livelihoods from nature and for anyone who is serious about development, this has to be recognised.
He describes the trickle down approach, which assumes that if you create wealth in the hands of the rich, some will be passed down to the poor, as "rubbish" and that the answer is a trickle up approach.
He believes the reason those in the developed world can't see this is because they do not think there is another economic model that is possible: "The green economy recognises that if farmers produce better crops as a result of healthier eco services, such as fresh water and better nutrients, they will create demand for products.
"The second aspect is to start paying for people to rebuild the natural environments by planting new forests and building small-scale dams with hard manual labour to collect water.
"Thirty million additional jobs have been created in India from this. We pay people to build roads and bridges and improve city infrastructure so why not pay people to clean-up wetlands.
"This is so counter-intuitive to the thinking of the city that they simply do not do it. And the politician looking over his shoulder at the corporations, simply does not think about this as a priority because he does not know how will be explain it to them.
"For those who question whether there is there enough demand in the agrarian economy, just look at the statistics which show there 1.2 billion people dependent on the free flows of nature, which are diminishing."
Sukhdev has a positive vision of the future but also recognises that unless we respond now to the degradation of our planet, the future is likely to be very dark indeed.
He gives one example: forests are being lost at the rate of 10-12m hectares per annum, which leads to a further loss of biodiversity, the disruption of rainfall cycles, and lower soil fertility as topsoil is washed into the ocean.
In India alone, 5bn tonnes of topsoil are being swept into the Indian Ocean every year. Just at the time when the increasing global population will need more food production, agricultural yields will fall further.
What angers Sukhdev above all is how subsidies are hastening the destruction of fish stocks: "There is no major fishery area which is not significantly exploited or overexploited. The global trawler capacity is in excess of our requirements by between 180% to 280%.
"Yet the industry enjoys annual subsidies of $26bn, one third of the total value of the landed catch of ocean fish, which is used to increase trawler capacity.
"We have the most amazingly perverse economics prevailing. Economics is about the management of scarce resources, which in this case is fish, but then we invest in increasing fishing capacity because we have over-capacity.
"If we carry on, the 27 million fishermen, and the 110 million who rely on them, will lose their livelihoods and the one billion people in the developing world, whose main source of animal protein is fish, will have their health put at risk. People will have to get used to eating box jelly fish because that is all we will be left with.
"This is my candidate to win any award for economic stupidity."
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