How to Get Wall Street to Hug a Tree
Environmentalists and investment bankers are working together to put a price tag on nature. The new 'greens' think that human beings are ready to start paying for Mother Nature's services—and that calculating their financial worth will save the planet.
By David Wolman, David Wolman is the author of "A Left-Hand Turn Around the World" and has written for Wired, Newsweek Discover and other magazines.
February 11, 2007
Photo illustration by Eric Tucker
Photo illustration by Eric Tucker
Gretchen Daily, an ecologist at Stanford University, wears butterfly-patterned socks. She's a careful recycler and bikes to work. She composts.
So what's she doing hanging out with guys from Goldman Sachs?
As a tried-and-true "green," she believes she doesn't have a choice.
"Time is running short," she says. "Appealing to moral sense isn't enough anymore. We have to make conservation fit mainstream business calculations."
In her fourth-floor office in the Herrin Labs just off Stanford's main quad, Daily, a professor of biological sciences and director of the tropical research program at Stanford's Center of Conservation Biology, shows me what she means. She clicks open a series of digital maps compiled for a meeting in New York with Goldman Sachs. The maps' rich purple-and-blue hues convey information about California's Central Coast eco-region, which stretches from Santa Barbara north to Napa County and includes San Francisco Bay. Daily explains how each image tells a story of the terrain's value—not property value as a real estate agent would figure it but value in terms of service to mankind. Where the terrain offers a high degree of flood protection, for example, the map is the brightest purple; where the flood-protecting function is comparatively low, the color is light blue. The ecosystems providing the most overall value to people are shaded to indicate highest priority.
If Daily and her colleagues can get Wall Street on board, the maps will also be shaded to indicate financial worth.
This is the future of the environmental movement. Increasingly, economic measures are being used to assess ecosystems by way of the universally comprehensible currency of money. The calculations can be quite explicit: A recent study by the World Wildlife Fund reckoned that the bees that pollinate a Costa Rican coffee farmer's crop, and by extension the nearby forest where the bees live, are worth as much as $60,000 annually to the farmer. Last year, two entomologists, one from Cornell University and the other from the Xerces Society for Invertebrate Conservation, figured that a $60-billion-a-year chunk of the U.S. economy is supported by wild bugs such as dung beetles and bees that pollinate plants, hasten the decomposition of manure, feed on crop pests and end up as dinner for birds, small mammals and fish.
Such huge numbers can be compelling, and they get people talking. Which is the point.
"We need a new conservation," Daily says. "We don't want to let go of the past. We just want to bring revenue streams into conservation." As it is, environmentalists "aren't really relevant in policy and business decision-making. If we don't do something to become relevant, we don't have a chance."
For most of history, nature, when not playing the part of a wild force to be reckoned with, has been a remarkably consistent servant of civilization. In agriculture, for example, much of humanity's success has depended on the functions of bees, bats and other pollinators. These organisms never submitted an invoice, though, and there was never reason to imagine that their work wouldn't continue in perpetuity.
So much for that. Since the '60s, scientists have been declaring with increasing acuity that environmental degradation isn't just heartbreaking and hazardous, it's also expensive. The financial stakes really came into focus when big-name number crunchers—including Cambridge University economics professor Sir Partha Dasgupta, former World Bank economist Herman Daly and Stanford economist and Nobel laureate Kenneth Arrow—began gauging the negative effect of binge consumption of natural capital on world economies.
Now, says Humboldt State economist Steven Hackett, we know that "the economy doesn't exist in a vacuum." When competitive markets don't put financial values on nature's services, "there is the potential for maladies." Deforestation is an example. A small number of people profit from the sale of timber or cattle raised on cleared forest lands, but all of us bear the costs of soil runoff, increased carbon emissions and so forth. Many scholars and activists suspect (or at least hope) that human beings have reached the point where we're willing to pay for nature's services, because we've finally come to accept that there's a relationship between caring for the environment and ensuring our well-being.
Evidence isn't hard to come by, and sales of hybrid cars and tickets for "An Inconvenient Truth" are only the beginning. One of my neighbors recently paid a few extra dollars to fly to St. Louis from Portland, Ore., so that his journey would be carbon neutral. A for-profit outfit called TerraPass, based in Menlo Park, did the math for him: To offset the carbon that one person's trip on a jetliner will introduce into the atmosphere during a 2,200-mile flight, that person must make a $5.99 investment in a carbon-reducing enterprise, such as a wind farm. TerraPass makes the investment for you, and in the process makes a little money for itself too.
Even if a TerraPass holder believes that he's looking out for his own interests by reducing emissions, he's probably not acting out of rational self-interest the way people generally do in the wacky world of economics; he's basically making a donation. What Daily and her colleagues are after is a financial markets-approved system that applies a straight-up profit incentive to being green. Instead of a voluntary payment of $5.99 for carbon-neutral travel, imagine an economy in which a company would pay you $5.99 to stay home so it could sell a pollution credit to someone who wants to fly to St. Louis more than you do.
If ecosystems that do a great deal for people are to be recognized as of great monetary value, "ecosystem services" will have to become a household phrase.
Despite the snooze-inducing moniker, ecosystem services have occasionally appeared on the public-consciousness radar. The most frequently referenced episode occurred a decade ago, when New York City officials determined that it would be cheaper to protect from pollution the upstate New York watershed, which naturally purifies the city's water, than it would be to spend billions of taxpayer dollars on a municipal water treatment plant. The next visibility boost for ecosystem services came in 1997, when a team of scientists led by Robert Costanza, then with the University of Maryland, published a study in Nature that estimated the value of all the ecosystems and natural capital on the planet. The very rough figure: $33 trillion a year. The research led to a predictable rush of newspaper stories about Mother Nature's price tag and, despite being criticized for weak methodology, the study nudged the concept of ecosystem services valuation further into the mainstream.
Perhaps the biggest indicator of the trend—you might call it environomics—is that the world's largest conservation organizations have embraced it. The just-launched Natural Capital Project, a $15-million-plus program that seeks, as its literature explains, to make conservation "economically attractive," is a collaboration of Stanford's Woods Institute for the Environment, the Nature Conservancy and the World Wildlife Fund. The project will measure the carbon, hydrology and biodiversity benefits of the Afromontane region of East Africa; China's upper Yangtze River basin; California's Sierra Nevada range; and the islands of Hawaii. The goal? Putting a price tag on all of them.
This sort of effort not only holds promise for conservation gains but also neutralizes the charge that nature-loving nongovernmental organization types care more about cute animals than they do about people. Not that environmental groups will stop trying to save vulnerable creatures and habitats anytime soon. Soliciting donations from the penguin-enamored citizenry, and pressing conservation agendas with intensive lobbying efforts and photo-saturated campaigns, has kept the groups in business. Donors like to see pictures of colorful frogs and think that their checks help save them.
They do. But for every one frog species protected, hundreds of other species are becoming extinct—and those species' disappearance might be more harmful to your economic future than the one you just wrote a check to save. If conservation is to matter, both for its own survival as a movement and to effectively reduce damage to the biosphere, the mission must be recast. "You do realize how badly we're losing, don't you?" asks Rebecca Shaw, director of conservation science and planning at the Nature Conservancy in San Francisco.
Once the spectrum of nature's needs and human activities are analyzed together, planners can make development decisions that minimize environmental costs while maximizing investment. Reaching out to the likes of Goldman Sachs and other powerhouse financial institutions is part of the broader quest to show the world that capital markets could do wonders for environmental protection—and that there could be big money in nature for pioneering investors. The Natural Capital Project has only recently begun recruiting banks, but bringing them on board is crucial, Daily says. "Just having biologists trying to set this up would be disastrous."
Environmentalists and investment bankers are working together to put a price tag on nature. The new 'greens' think that human beings are ready to start paying for Mother Nature's services—and that calculating their financial worth will save the planet.
By David Wolman, David Wolman is the author of "A Left-Hand Turn Around the World" and has written for Wired, Newsweek Discover and other magazines.
February 11, 2007
Photo illustration by Eric Tucker
Photo illustration by Eric Tucker
Gretchen Daily, an ecologist at Stanford University, wears butterfly-patterned socks. She's a careful recycler and bikes to work. She composts.
So what's she doing hanging out with guys from Goldman Sachs?
As a tried-and-true "green," she believes she doesn't have a choice.
"Time is running short," she says. "Appealing to moral sense isn't enough anymore. We have to make conservation fit mainstream business calculations."
In her fourth-floor office in the Herrin Labs just off Stanford's main quad, Daily, a professor of biological sciences and director of the tropical research program at Stanford's Center of Conservation Biology, shows me what she means. She clicks open a series of digital maps compiled for a meeting in New York with Goldman Sachs. The maps' rich purple-and-blue hues convey information about California's Central Coast eco-region, which stretches from Santa Barbara north to Napa County and includes San Francisco Bay. Daily explains how each image tells a story of the terrain's value—not property value as a real estate agent would figure it but value in terms of service to mankind. Where the terrain offers a high degree of flood protection, for example, the map is the brightest purple; where the flood-protecting function is comparatively low, the color is light blue. The ecosystems providing the most overall value to people are shaded to indicate highest priority.
If Daily and her colleagues can get Wall Street on board, the maps will also be shaded to indicate financial worth.
This is the future of the environmental movement. Increasingly, economic measures are being used to assess ecosystems by way of the universally comprehensible currency of money. The calculations can be quite explicit: A recent study by the World Wildlife Fund reckoned that the bees that pollinate a Costa Rican coffee farmer's crop, and by extension the nearby forest where the bees live, are worth as much as $60,000 annually to the farmer. Last year, two entomologists, one from Cornell University and the other from the Xerces Society for Invertebrate Conservation, figured that a $60-billion-a-year chunk of the U.S. economy is supported by wild bugs such as dung beetles and bees that pollinate plants, hasten the decomposition of manure, feed on crop pests and end up as dinner for birds, small mammals and fish.
Such huge numbers can be compelling, and they get people talking. Which is the point.
"We need a new conservation," Daily says. "We don't want to let go of the past. We just want to bring revenue streams into conservation." As it is, environmentalists "aren't really relevant in policy and business decision-making. If we don't do something to become relevant, we don't have a chance."
For most of history, nature, when not playing the part of a wild force to be reckoned with, has been a remarkably consistent servant of civilization. In agriculture, for example, much of humanity's success has depended on the functions of bees, bats and other pollinators. These organisms never submitted an invoice, though, and there was never reason to imagine that their work wouldn't continue in perpetuity.
So much for that. Since the '60s, scientists have been declaring with increasing acuity that environmental degradation isn't just heartbreaking and hazardous, it's also expensive. The financial stakes really came into focus when big-name number crunchers—including Cambridge University economics professor Sir Partha Dasgupta, former World Bank economist Herman Daly and Stanford economist and Nobel laureate Kenneth Arrow—began gauging the negative effect of binge consumption of natural capital on world economies.
Now, says Humboldt State economist Steven Hackett, we know that "the economy doesn't exist in a vacuum." When competitive markets don't put financial values on nature's services, "there is the potential for maladies." Deforestation is an example. A small number of people profit from the sale of timber or cattle raised on cleared forest lands, but all of us bear the costs of soil runoff, increased carbon emissions and so forth. Many scholars and activists suspect (or at least hope) that human beings have reached the point where we're willing to pay for nature's services, because we've finally come to accept that there's a relationship between caring for the environment and ensuring our well-being.
Evidence isn't hard to come by, and sales of hybrid cars and tickets for "An Inconvenient Truth" are only the beginning. One of my neighbors recently paid a few extra dollars to fly to St. Louis from Portland, Ore., so that his journey would be carbon neutral. A for-profit outfit called TerraPass, based in Menlo Park, did the math for him: To offset the carbon that one person's trip on a jetliner will introduce into the atmosphere during a 2,200-mile flight, that person must make a $5.99 investment in a carbon-reducing enterprise, such as a wind farm. TerraPass makes the investment for you, and in the process makes a little money for itself too.
Even if a TerraPass holder believes that he's looking out for his own interests by reducing emissions, he's probably not acting out of rational self-interest the way people generally do in the wacky world of economics; he's basically making a donation. What Daily and her colleagues are after is a financial markets-approved system that applies a straight-up profit incentive to being green. Instead of a voluntary payment of $5.99 for carbon-neutral travel, imagine an economy in which a company would pay you $5.99 to stay home so it could sell a pollution credit to someone who wants to fly to St. Louis more than you do.
If ecosystems that do a great deal for people are to be recognized as of great monetary value, "ecosystem services" will have to become a household phrase.
Despite the snooze-inducing moniker, ecosystem services have occasionally appeared on the public-consciousness radar. The most frequently referenced episode occurred a decade ago, when New York City officials determined that it would be cheaper to protect from pollution the upstate New York watershed, which naturally purifies the city's water, than it would be to spend billions of taxpayer dollars on a municipal water treatment plant. The next visibility boost for ecosystem services came in 1997, when a team of scientists led by Robert Costanza, then with the University of Maryland, published a study in Nature that estimated the value of all the ecosystems and natural capital on the planet. The very rough figure: $33 trillion a year. The research led to a predictable rush of newspaper stories about Mother Nature's price tag and, despite being criticized for weak methodology, the study nudged the concept of ecosystem services valuation further into the mainstream.
Perhaps the biggest indicator of the trend—you might call it environomics—is that the world's largest conservation organizations have embraced it. The just-launched Natural Capital Project, a $15-million-plus program that seeks, as its literature explains, to make conservation "economically attractive," is a collaboration of Stanford's Woods Institute for the Environment, the Nature Conservancy and the World Wildlife Fund. The project will measure the carbon, hydrology and biodiversity benefits of the Afromontane region of East Africa; China's upper Yangtze River basin; California's Sierra Nevada range; and the islands of Hawaii. The goal? Putting a price tag on all of them.
This sort of effort not only holds promise for conservation gains but also neutralizes the charge that nature-loving nongovernmental organization types care more about cute animals than they do about people. Not that environmental groups will stop trying to save vulnerable creatures and habitats anytime soon. Soliciting donations from the penguin-enamored citizenry, and pressing conservation agendas with intensive lobbying efforts and photo-saturated campaigns, has kept the groups in business. Donors like to see pictures of colorful frogs and think that their checks help save them.
They do. But for every one frog species protected, hundreds of other species are becoming extinct—and those species' disappearance might be more harmful to your economic future than the one you just wrote a check to save. If conservation is to matter, both for its own survival as a movement and to effectively reduce damage to the biosphere, the mission must be recast. "You do realize how badly we're losing, don't you?" asks Rebecca Shaw, director of conservation science and planning at the Nature Conservancy in San Francisco.
Once the spectrum of nature's needs and human activities are analyzed together, planners can make development decisions that minimize environmental costs while maximizing investment. Reaching out to the likes of Goldman Sachs and other powerhouse financial institutions is part of the broader quest to show the world that capital markets could do wonders for environmental protection—and that there could be big money in nature for pioneering investors. The Natural Capital Project has only recently begun recruiting banks, but bringing them on board is crucial, Daily says. "Just having biologists trying to set this up would be disastrous."
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