Mainstreaming the Economics of Ecosystems @ CII ITC Sustainability Summit

The evening session of Day 1 of the CII-ITC Sustainability Summit in Delhi ended with a topic that challenges the current economic system. The Economics of Ecocystems and Biodiversity (TEEB) study that came out in 2007 challenged the way we need to value our natural capital. But we still see, that such economics is yet to be adopted in the mainstream corporate world.

The business world as well as countries have been taking Natural Capital for granted that is seemingly freely available. This thinking needs to change – after all, environment is not just about resources but the impact that our actions leave behind. So how do we put the value to natural capital? For that, we need to understand what kind of services it provides and then put that knowledge in the mainstream public policy domain.

Here are the key points that were discussed on how we can mainstream TEEB:

  • Have better understanding of the risks companies face and opportunities at hand
  • Public accountability
  • People awareness – We’re not just consumers, we are citizens and as citizens there is direction forward
  • Business is inherently responsible and will understand the need for externalities
  • Regulations by chartered organizations
  • Involvement of communities

“The Mother” of TEEB – Pavan Sukhdev

By far, one of the most interesting personalities of whom I later had the privelege of meeting during his book launch. His presentation was clear and direct with certain, can-do-able action steps that corporations can take in our effort to fight off global warming. He stressed on climate change action based on economics and based those on the 3 layers of Ecosystems, Species and Genes. Most of the services provided in these 3 layers are not priced or valued.

TEEB was the answer to that challenge so that environmental impacts could be measured since the economic invisibility of nature is the problem.

“And because we don’t value the services, we assume that nature is the weaker part of the trade-off and destroy a forest to make rubber chappals!”

Pavan also provided a cutting explanation of what externalities are…in the words of Yyon Chouinard, founder of Patagonia – Everything that is manufactured is sold at a price that is lower than its cost.

How’s that possible? There are 3rd party costs borne by someone else. And since laws don’t prevent externalities, it is perfectly legal to dump them on others.

“We are navigating a ship called Earth with a simple tool like compass!!”

One example that Pavan alluded was of Shrimp farming in Thailand – a classic case of private profits and public losses.

Shrimp farming which on surface seems to generate $9,500 per hectare of land farmed as opposed to the original mangrove forest which gave a mere $600 per hectare. But when we dig deeper, we find that the actual returns on shrimp are $1200 (rest is subsidies in the shrimp farming chain). And on further digging, we find that if the land is rendered useless after 5-6 years of shrimp farming, the restoration costs also add up that have been conveniently externalized in the figures. So, the final value of mangroves (land left as it is) is $13000 as opposed to the loss of $11000 in shrimp farming.

Economic textbooks don’t cover this environmental economics. This is not illegal…but the question Pavan challenged was for how long can you keep doing this? Puma that came out with its environmental report last year disclosed its external costs occured as a result of their operations, which were $125 mn, which is big number considering their profits are just $250mn.

“The Father” of TEEB: Eric Solheim

Norweign Government Minister was highly optimistic on the current times that we are living in and delved into a bit of Norwary’s past which was once all dirty and polluted and which later turnaround fairly quickly in a short span of time to one of the cleanest and greenest countries of the world. Norway, is by far the largest supporter of TEEB.

“Establish a global system for payment of destruction of environment”

Norway and Brazil are together working to compensate the nature’s services. Brazil has reduced poverty and reduced deforestation by 70%. If Brazil can do it, any country in the world can.

The session also had speakers like Bhaskar Chatterjee of Indian Institute of Corporate Affairs and PS Narayan from Wipro adding to the conversation by asking corporates to know their impacts and then deciding on the options. Once companies know their true costs, only then can they start to work in this direction.

The session was followed by Pavan Sukhdev’s book launch. The book is called “Corporation 2020: Transforming Business for Tomorrow’s World”. Limited copies were available for sale and Pavan personally signed all the copies. Naturally, I got one too. Should be an interesting read!

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