Anna Turns considers why GDP is defunct, and investigates the potential of investing in natural capital
The words ecology and economy stem from the same Greek word ‘oikos’ meaning home. Climate is inextricably linked with the flow of money. But business as usual will have costly consequences. Oxford University’s Kate Raworth, author of Doughnut Economics argues that all sectors need to shift away from economic growth towards a more circular system that focuses on living within social and ecological limits. Fundamentally, the main measure of market value - gross domestic product or GDP - does not take into account the inherent value of nature and sustainability. Natural capital represents the benefits we gain from nature – that includes everything from medicines to food and timber, carbon storage and wellbeing too. The outdated concept of GDP places no formal worth on biodiversity, habitats, ecosystems - all things being destroyed by the environmental crisis. Without them, the economy will collapse. So the concept of how we assign value needs to shift.
‘Profit and growth aren’t intrinsically bad but they shouldn’t ever be pursued at the expense of everything else,’ explains Ellen Harrison, corporate projects manager at Triodos Bank UK. Rather than solely looking at risk versus return models, Triodos has always factored in positive social and environmental impacts too. ‘It’s interesting that during the pandemic we’ve seen the pursuit of growth in many cases thrown out of the window because there was obviously something else that was more valuable to the human race at that moment in time – our family, our communities, the environment around us,’ she says. ‘Sustainable banking is about financing the needs of today in a way that won’t compromise the needs of future generations. That’s got to be done within those planetary boundaries that Raworth highlights.’
In the UK, a new report by the Cornwall Area of Outstanding Beauty called the Natural Capital Prospectus suggests that Cornish farmers could unlock natural capital worth millions. It sets out a ten-year plan, developed alongside farmers, and outlines a landscape recovery framework for sustainable farming businesses to improve biodiversity and create new natural capital worth between £3.7 and £15.8 million. ‘Nature provides a vast range of ‘free’ services that benefit humans – but these are often undervalued or ignored in decision making,’ says report author Dr Grace Twiston-Davies of the Environment and Sustainability Institute at the University of Exeter. Grants will encourage farmers to restore hedgerows, establish more ponds and wetlands and diversify land use away from monocultures. ‘Positive investment can bring returns far in excess of the initial costs,’ adds Twiston-Davies.
But grants alone won’t be enough. So how best can we fund climate interventions in a financially viable way at scale while making sure that corporations and financial institutions deploy their capital in a way that allows nature, and the economy, to thrive?
The fintech company Cultivo has launched a new platform that enables investments around the world to deliver ecological returns through land restoration, protecting biodiversity and natural carbon capture. Co-founder and CEO of Cultivo Dr Manuel Piñuela is a nature advocate, technology and science entrepreneur based in San Francisco, US, who ensures these investments bring financial returns for investors and social returns for local communities so it’s what he calls a ‘triple win’. Piñuela describes nature as ‘our most precious asset’ and he aims to restore at least 3.5 million hectares of land within the next five years by unlocking $1 billion investment to finance projects that vary from wetland restoration to regenerative agriculture.
In the US on the west coast, Cultivo is working with an agricultural technology company called TerViva to help farmers finance the growth of pongamia. This thousand-year-old legume tree native to Asia produces plant protein which has similar properties to soy, yet can be farmed much less intensively and result in higher yields. The proven sustainability benefits of pongamia include carbon storage, minimal chemical input and low water usage. This can all be translated into carbon credits that in turn create new revenue streams for the farmers whilst restoring degraded farmland to productive use.
‘Nature-based solutions can provide at least 30 per cent of the CO2 mitigation goals by 2030, yet receive only around 3 per cent of the funding allocated to carbon capture,’ describes Piñuela. ‘Cultivo's mission is to bridge this funding gap by providing an innovative financing mechanism that connects financial institutions to NGOs and landowners in order to unlock investment into natural capital opportunities that restore nature, protect livelihoods, and deliver healthy financial returns to investors.’
So at Cultivo, success hinges on hi-tech solutions. Remote sensors and algorithms help identify the best project locations and forecast the natural capital returns. The different projects that Cultivo select from around the world are pooled into investment products known as ‘nature generators’. This provides financial institutions with a simple way to invest in nature-based projects at scale and ultimately, resilience stems from diversity within both natural ecosystems and within green investments.
By Anna Turns