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Pricing the environment makes business sense

July 13, 2010

The short term market driven view of “soulless corporation” can be “cancerous” to the environment and biodiversity. Sounds like an environmental campaign slogan. Not quite. This comes as a warning from Pavan Sukdev, author of the highly anticipated report The Economics of Ecosystems and Biodiversity (TEEB) for Business launched today on the value of the natural environment.

At the local level, the LGiU report on Natural Leaders found that councils, as local leaders, play an important role in capitalising on the value of the natural environment as a cost effective way to meet local challenges. For example, in North West England alone the environmental economy supports jobs and businesses worth up to £2.6bn GVA and provide 109,000 jobs. On health, living close to high quality accessible natural environment can lengthen life irrespective of other factors affecting life expectancy. On climate change, improved management of lowland peat soils would help address an annual loss of carbon estimated to be worth as much as £150 million.

At the global level, the TEEB report argues that environmental degradation and biodiversity loss could actually incur huge economic costs to businesses. For example, the Amazon generates 8 trillion tons of water a year. Cutting it down will dramatically reduce rainfall in countries such as Brazil, where the energy sector is 70 percent dependent on hydropower. Another example is BP. Its shares have plummeted by half their values since the oil spill in the Gulf of Mexico. Companies are better off putting a price on ecosystem services to assess the risks and opportunities to their businesses.

Pricing ecosystem based on their economic, environmental and social values may be harder than one thinks. Nevertheless, it could prove effective in incentivising better behaviour in the use of natural resources.

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