Economic metrics should serve nature-based solutions – not the other way around

January 20, 2022

By Una Jefferson

We need all the funding we can get to protect ecosystems from damage by humans. The global shortfall in funding to halt biodiversity decline has been estimated at $700 billion US dollars annually, and nature-based solutions (NBS) to climate change could mitigate GHGs by up to 78.2 megatonnes (CO2-equivalent) annually in Canada by 2030 – if sources of funding are found. Philanthropic and public funders motivated by environmental and social concerns will not be able to fill this funding gap alone.

One way to narrow this funding gap is to be more explicit about the economic benefits of nature-based solutions to human problems like climate change or water management. There are a few basic economic metrics that capture a tiny fraction of the value of NBS projects – some of which can’t be quantified – but could attract new funders for these projects. For example:

• Healthy ecosystems can extend the life of – or even replace – built infrastructure. E.g. seven kilometres of creek-side natural area in the Oshawa Creek Watershed provides the city with storm water conveyance services that would cost $18.9 million if performed by built infrastructure. The insurance industry also benefits from reduced damage from flooding and other natural disasters.
• NBS projects create jobs at a similar rate to other infrastructure projects, often in areas where jobs are otherwise scarce. This means that local, provincial, and federal economic development authorities have an interest in funding these projects.

Some NBS practitioners, particularly bigger organizations like Ducks Unlimited and the Nature Conservancy of Canada, are already using these economic metrics to attract funding. But overall, NBS practitioners use them less than other environmental organizations. For example:

• In 2020, the Taskforce for a Resilient Recovery made recommendations to the federal government on COVID-19 recovery spending. The Taskforce received a large number of proposals for both NBS and technology-based solutions (TBS) to climate change but found that TBS practitioners were more adept at projecting impacts on jobs and economic output – metrics of particular interest to the government decision-makers in charge of allocating recovery funds.
• NBS projects are less likely to be included in green bonds than technological solutions. For example, in 2019, projects related to energy, buildings and transport made up 80% of green bonds globally, while “land use” projects made up only 3.5%.

Why is this? There are many reasons, but we suggest two important ones:

• Fear of compromising environmental and social values: Some NBS practitioners worry that, by using economic metrics, they risk contributing to the commodification of nature, and are – justifiably – uncomfortable with this possibility.
• Lack of economic capacity: Many NBS practitioners, particularly smaller ones, don’t have in-house economic expertise.

A new guidebook from Smart Prosperity Institute argues that neither of these facts needs to prevent NBS practitioners from using economic metrics to access additional funding, because:

• Using economic metrics to alert prospective funders to the ways they could benefit from NBS projects need not compromise environmental or social values – as long as it is clear that these metrics only capture a small portion of these projects’ overall value.
• There are powerful economic metrics that NBS practitioners can use without in-house economic expertise, as long as they follow best practices. We highlight the following metrics:
  • Direct and indirect impacts on jobs and economic output
  • Revenue streams and cost savings from GHG uptake, reduced soil erosion, nature tourism, and nutrient removal

Using economic metrics to attract funding needn’t compromise environmental or social values

Economic metrics capture a tiny fraction of the value of NBS projects. But economic metrics do not need to be comprehensive to notify prospective funders that they have an economic interest in funding a project; they only need to reliably capture what the prospective funder stands to gain.

Over time, we hope that more funders will be attracted by the environmental and social benefits of NBS projects, and by a broader range of economic benefits. There can be no economic activity without healthy ecosystems, and there are several initiatives that aim to sensitize economically-minded funders to this fact – from pollution pricing to natural asset accounting and beyond. But in the meantime, given the urgency of the climate and biodiversity crises, NBS practitioners can make pragmatic use of our selected economic metrics to attract additional funding.

Some economic metrics are accessible to non-economists

NBS practitioners do not need in-house economic expertise to use our selected economic metrics to attract additional funding, we argue. This is important, since it lets them focus on projects’ environmental and social impacts.

Economic metrics for NBS projects are sometimes misused, which undermines their usefulness as a tool to attract funding. For example, a lack of standardization and best practices in estimating the economic value of ecosystem services provided by wetlands has made some Canadian municipalities distrustful of these estimates. We share best practices in the guidebook – notably, how to transfer estimates from existing studies while accounting for important differences in context.

Governments can make more economic metrics accessible to NBS practitioners – further increasing the funding opportunities available to them – by improving data availability and accessibility. Among other things, we recommend:

• Publishing input-output multipliers that correspond to the types of expenditures typically made by NBS projects
• Collecting better data on carbon fluxes and stocks
• Collecting better data on water treatment costs and tourism activity
• Using free and open-source data protocols and publishing data products that can be used by non-experts

Organizations like the Municipal Natural Assets Initiative have been working for years on securing new funding streams for NBS projects using economic metrics. This guidebook is meant to contribute to this effort. We hope to help NBS practitioners feel confident that they can use economic metrics in a way that doesn’t compromise or distract from their main focus: protecting ecosystems and the people who live in them.

Learn more - Register now for our free February 10^th event “Money doesn’t grow on trees: The complexity of how we value nature” which will explore the nuance and complexity of assigning economic value to nature.