Building a Market for Conservation

By Justin Worland

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A few weeks ago, I wrote in this newsletter about the economic value of coral reefs as a quick look into the very tangible costs of the damage to the natural world caused by climate change. It was a brief lens into the economics of conservation.

Earlier this week, I led a panel discussion on the economics of conservation and climate change at the Milken Institute Global Conference in Los Angeles. For the uninitiated, the Milken conference is a marquee gathering of leaders across a variety of fields with a particular focus on finance. And, from my vantage point, looking across sectors it was encouraging to see nature and climate discussed through an economic and financial lens.

At the heart of the discussion was the simple reality that protecting nature delivers economic dividends—and can be advanced by a range of financial solutions.

First, let’s look briefly at the economic value that protecting nature delivers. More than half of the global economy is highly or moderately dependent on nature, according to data from PWC. That value comes in large part from the way in which natural products are woven into supply chains. “Whether it's access to plant material for important life saving drugs, whether it's timber for construction, whether it's ecosystem services like water,” Jennifer Morris, CEO of The Nature Conservancy (TNC), said on the panel. “If we lose that, we lose everything.”

Crucially, nature also stores carbon dioxide that gets released into the atmosphere when humans destroy the natural environment, avoiding an untold economic cost. Today, about half of carbon emissions are absorbed by nature, namely forests and oceans. But many forests, including the Amazon, are in danger of destruction, which could in turn release dangerous levels of carbon dioxide into the atmosphere. “If in the next five years deforestation doesn't come to zero, the Amazon will no longer be a prevention wall,” said Iván Duque, the former president of Colombia. “It will become a net emitter of greenhouse gasses.”

There are a variety of approaches to tackling these issues. Looking at the problem through an economic lens, those solutions often entail putting a price on the destruction. That could mean implementing an emissions tax that penalizes companies that destroy the Amazon or buy from companies that do.

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Financial mechanisms can help incentivize protection, too. Organizations like TNC are helping coordinate the flow of public and private funds to developing countries in exchange for protection of the environment. So-called debt-for-nature swaps, in which lenders give more favorable terms to debtor countries in exchange for conservation efforts, have also risen on the global agenda.

While all these ideas work well in principle, they require significant continued innovation to iron out the details. But it was encouraging to see them come up in my session, and others. “The fact that we're having this panel at the Milken Conference, tells you how top of mind this topic is becoming,” said Wendy Schmidt, president and co-founder of the Schmidt Family Foundation and the Schmidt Ocean Institute. “Not just for conservationists, for everybody.”

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