Setting a nature price: how does this work in practice?
If the targets set out in the Kunming-Montreal Global Biodiversity Framework are to be realised, investors could soon face some far reaching policy changes
There is still a long way to go to create an enabling policy environment for a nature-positive economy.
While $200bn is allocated annually to nature positive activities, $7trn goes to economic activities that harm nature, according to the UN.
These figures imply that the system is still tilted in favour of short-term gains rather than managing long-term risks.
Yet 196 countries have signed the Kunming-Montreal Global Biodiversity Framework, so in theory the world should start to see a dramatic shift in policymaking, if states are serious about meeting the framework's goal of reversing nature loss by 2030.
Given the complexity of ecosystems and economies, no single policy is sufficient to buck the trend. Rather, a system change requires a combination of diverse initiatives.
Net Zero Investor has compiled a list of ten paradigm-shifting policies that policymakers may implement in the next ten years.
1. Nature positive transition pathways
The first point is that firms need greater clarity on what the nature positive transition should look like, on a sector-by-sector basis. That will help them with their transition plans.
The World Economic Forum’s “Nature-Positive Industry Sector Transitions” reports map out sector-specific actions that companies should take to transform their businesses and contribute to reversing nature loss by 2030.
Similarly, WBCSD’s Roadmaps to Nature Positive provide companies with comprehensive step-by-step "how to” guides for taking credible, impactful nature action.
Karen Ellis, chief economist at the WWF, said this is a good start, but ideally governments would also set transition timetables with hard limits, as they have done, for example, with bans on the sale of new petrol and diesel cars.
Setting nature positive transition pathways at the national level is a core pillar of WWF’s own Nature Positive Economy Roadmap.
2. Natural resource taxes
Natural resource taxes aim to ensure long term sustainability by increasing awareness of natural resource consumption, "pricing in" damage to natural assets, and incentivising responsible behaviour.
They could target a range of goods and activities, such as oil products, forest risk commodities, energy, land, and water use.
Paying for a plastic bag at a supermarket is an obvious example of a natural resource tax. The aim is to make citizens aware of the ecological implications of plastic bag production and overconsumption, and, by putting a price on them, deter usage.
3. Specific bans
While taxing plastic bags may help curb usage, surely an outright ban would be far more effective?
The answer is certainly yes.
This is true not only for plastic bags, of course, but a range of harmful goods and activities. The implications of banning environmentally-harmful pesticides in agriculture, for example, recently featured in the Dutch Central Bank’s landmark nature scenario analyses.
Interestingly, the study concluded that the financial stability impact of banning certain pesticides was less severe than the potential impact of an ecosystem collapse caused by not banning them.
This could be seen as a green light for more ambitious nature-positive policymaking, though the researchers also noted limitations in their models.
Governments may also establish conservation areas and impose restrictions on the kind of economic activities that can take place within them.
4. Due diligence laws
European policymakers have already begun tightening global supply chains with ambitious pieces of legislation such as the Corporate Sustainability Due Diligence Directive, the Deforestation Regulation, and the UK’s Environment Act.
These rules aim to make firms legally liable for the environmental impact of their goods and services.
The Deforestation Regulation requires companies trading in cattle, cocoa, coffee, oil palm, rubber, soya and wood, as well as products derived from these commodities, to conduct extensive diligence on the value chain to ensure the goods do not result from recent deforestation, forest degradation or breaches of local environmental and social laws.
Penalties include fines proportionate to the environmental damage and value of the items (increasing with repeated infringements) with a maximum of at least 4% of EU turnover in the preceding year.
5. Anti-money laundering rules
Stopping illicit financial flows related to environmental crimes is also on the policymaking agenda.
AMLD6 is the first time an EU anti-money laundering law specifically targets environmental crime.
After noticing that countries weren’t following the money for environmental crimes, the global money laundering watchdog FATF began prioritising the issue, producing two global reports. Each report has specific risk indictors and recommendations for countries.
Similarly, EMPACT (European Multidisciplinary Platform Against Criminal Threats), has identified financial crimes and environmental crimes as a priority enforcement area.
“The compliance incentives for companies to stay on the right side of AML laws are typically high,” said Ellis. “However, this area would also benefit from stronger enforcement and tighter regulations around the world.”
6. Quotas to prevent overconsumption
Quotas are all about putting a hard, legal limit on natural resource extraction and consumption.
The EU, for example, sets total allowable catches for most commercial fish stocks.
The same can be done for other natural resources such as forestry and oil and gas.
7. Global resource bank/fund
One of the more innovative policy ideas in this list involves creating a global fund to support conservation efforts in emerging markets and to enable a transition to nature-positive economic activities.
Brazil’s proposed "Tropical Forests Forever" fund calls for a new $250bn mechanism for conserving the world’s tropical rainforests.
Money raised from governments and the private sector would go into an independently-managed fund for tropical countries that meet thresholds for limiting deforestation.
Countries would see a reduction in the availability of funding if their deforestation rate increased.
Similarly, WWF is calling for a “global resource bank” that would tax the private sector and channel the funds into nature recovery projects.
“The countries with the most biodiverse-rich forests are often in the developing world and typically face challenges in accessing finance and raising funds from carbon markets," said Ellis.
Allocating international funds to such countries without relying on market mechanisms would help provide the right incentives to not deforest conversation areas, though it would also need careful monitoring.
8. Biodiversity credit market
The EU and the IMF have already extolled the benefits of compliance carbon markets.
The UK is currently trialling a similar scheme for biodiversity in the UK. Under the Environment Act’s Biodiversity Net Gain rules, real estate developers must ensure that biodiversity has improved by 10% following the development.
This can be achieved by purchasing biodiversity credits from the Environment Bank.
“To legitimise offsetting and ensure it’s done with high integrity, firms need to fully understand the impact of the project,” said Emma Toovey, the Environment Bank's ecology director.
That means "understanding what biodiversity is already there and what will be lost as a result of the development.”
The Environment Bank also has plans to establish a voluntary market.
Ellis said biodiversity credit markets are risky and should avoid the mistakes of carbon markets by having a “strong governance and regulatory framework” up front.
9. Natural capital accounting
Natural capital accounting is a tool to measure the changes in the stock and condition of natural capital (ecosystems) at a variety of scales and to integrate the flow and value of ecosystem services into accounting and reporting systems in a standard way.
The more transparency around the way economies interact with ecosystems, the easier it is to account for negative impacts.
10. Payment for ecosystem services
Payment for ecosystem services offer financial incentives in exchange for better land management.
Ellis said a number of schemes in China involve paying companies to invest in tree planting or reducing pollution runoff into waterways.
Finding the political will to implement nature-positive policies is the biggest obstacle to system change, Triodos's chief economist Hans Stegeman told Net Zero Investor.
It requires a "fundamental change in the logic by which societies and economies operate" – especially the emphasis on the perpetual expansion of economies.
Even setting a carbon price has proven “politically impossible” in certain parts of the world, due to vested economic interests, he continued.
While radical solutions such as de-growth or post-growth exist, they are still far from the policymaking mainstream.