From Impact Inequality To Impact Equality
Description
Matt Orsagh:
"Dasgupta refers to the excess of impact (I) over the biosphere’s regenerative rate (G), as Impact Inequality. Over time the biosphere has shrunk while our demands on it continue to grow. According to Dasgupta—and simple arithmetic—we need to better balance the supplying power of the biosphere, which is limited, and our demands on it. The report looks to enumerate some actions and policies that could bring about this balance and convert that Impact Inequality into Impact Equality.
The report cautions that hard choices will have to be made and will need to go beyond a tax here and a policy there."
Discussion
"According to the report, current estimates of financial investments in natural capital suggest that they are small, at only about 0.1% of global GDP (about US$78–143 billion per year). At the same time, global governments spend around US$500 billion on activities, such as subsidies and investment, that are harmful to biodiversity. Private finance has a role to play, but the ratio of private finance devoted to biodiversity ranges from about US$6.6 billion to US$13.6 billion, whereas financing for activities that are harmful to natural assets totaled about US$2.6 trillion in 2019.
It is important to realize that although finance has a role to play in addressing the challenges of increasing and protecting natural capital, that role is limited by the governmental and regulatory policies in which finance operates. Therefore, one of the main issues that finance must address is engagement with policymakers to ensure that we have data and price signals around natural capital to help us efficiently allocate capital that can increase natural capital.
According to the report, biodiversity-related taxes are infinitesimal in scope compared with subsidies and spending on activities that are harmful to the biosphere. Currently only about US$7.5 billion a year globally is focused on biodiversity-related taxes or fees. This is only about 1% of total annual revenue from environmentally relevant taxes. On the other side of this equation, when accounting for the negative externalities of fossil fuel subsidies, the cost is about US$5.2 trillion annually.
Expect to see growth in the market of payments for ecosystem services (PES) in the coming years, which currently amount to only US$36–42 billion in annual transactions and usually cover things such as carbon storage, conservation, and watershed services.
Other tools gaining popularity are biodiversity offsets, which increasingly are being written into law to mitigate or reverse the impact of projects (a construction project, for example) by offsetting the impact with a project beneficial to the biosphere.
Green bonds are already familiar to many in the financial world and, indeed, will have a role to play in earmarking funds for projects that can reverse or mitigate the impacts of biosphere depredation. See also, blue bonds for projects dealing with the ocean.
Environmental, social, and governance (ESG) integration of the biosphere in the investment process is in its early stages. ESG integration already has begun to consider how the environment affects a company. This increasingly is gaining currency in the investment world and is something we have written on a great deal in recent years. Not much scholarship or analysis, however, has been devoted to the impact a company has on the environment or biosphere. This concept of “double materiality” will only grow in importance as it becomes clear to more investors that we do not exist outside the biosphere and doing irreparable damage to our environmental systems will have deleterious long-term effects on markets and our way of life.
ESG investing is in its early stages as well, and while growing in popularity, it still lacks a definition and faces issues of green-washing. These issues will need to be resolved for natural capital–based investments as well.
Public–private partnerships and blended finance, in which governments provide grants or guarantees to cover some costs or risks, are making investors more willing to participate in this market.
Pooled funds can aggregate a number of biodiversity projects into one fund to diversify risk. This can include natural capital or biodiversity funds in the private equity market or more commercial offerings available to investors in public markets."