Financialisation of nature: A “neoliberal and doomed approach to conservation”
The IUCN World Conservation Congress is currently taking place in Marseille. Frédéric Hache of the Green Finance Observatory points out that the Congress, “fosters very problematic approaches to conservation”. Hache notes some of the session titles: “The business of oceans”; “What makes a conservation project bankable?”; “Making money from governing the commons”; “Investments in natural capital”; “Green is the new gold: partnering with the private sector for conservation finance”; “To what extent does biodiversity erosion create a risk for the French financial system”; “Biodiversity Offset Financing”; “Advancing mitigation and offset policy to conserve biodiversity”; and “Pros and cons of Nature-Based carbon offsets for conservation financing”.
Hache describes this as a “neoliberal and doomed approach to conservation”. He gives this statement as an example of the demonstrably false statements behind this approach: “The only way to slow and stop global biodiversity loss is to ensure that nature is appropriately valued in all economies and across all sectors.”
The statement comes from a presentation by Rose Niu, Chief Conservation Officer at the Paulson Institute, founded in 2011 by Hank Paulson, ex-Secretary of the Treasury under George W. Bush. Before that, Paulson was CEO of Goldman Sachs. The Paulson Institute operates “at the intersection of economics, financial markets, and environmental protection by promoting market-based solutions to ensure green economic growth”.
The Paulson Institute, in other words, is firmly in the driving seat of the financialisation of nature. But Paulson’s record is ugly. During the the financial crisis, Paulson bailed out his ex-company, Goldman Sachs, but let Goldman’s competitors, Lehman Brothers, fail. Paulson helped orchestrate a series of opaque mergers, between Bank of America and Merrill Lynch for example. Paulson bailed out the biggest banks – the institutions that were most responsible for the crisis – but he left millions of citizens to deal with their debts by themselves.
Why on earth would anyone want someone with a record like Paulson’s to get involved in environmental protection?
Our Land, Our Nature
Hache took part in the Our Land, Our Nature Congress that took place just before the World Conservation Congress started. Hache’s presentation questioned the role of the financial sector in preserving biodiversity.
Hache talked of false solutions which are “aimed at maintaining the status quo while giving the illusion of action”. One example of such false solutions are green claims based on the promise of “green growth promises that are already known to be unrealistic at the scale and during the time-frame required, or that are based on unproven and risky technological innovation such as geo-engineering”.
False solutions aim to address climate change and biodiversity loss only to the extent that they do not challenge economic growth and vested interests. “They work by creating a distraction from the real solutions,” Hache says, “and by providing instead the social license for the current economic growth maximisation paradigm to continue.”
In April 2021, Hache co-wrote, with Clive Spash, a response to the Dasgupta Review, a 610-page report published by the UK Treasury under the title, “The Economics of Biodiversity”. They argue that,
Rather than challenging the current status quo and providing solutions to address critical biodiversity loss and the 6th mass extinction of species, this Review can be understood as providing the social licence for growth maximisation to continue, thanks to new natural and human capital side constraints.
In his presentation, Hache looks at three phases of the financialisation of nature: Putting a price on nature; Offsetting; and Tradeable financial instruments.
Putting a price on nature
In order to put a price on nature, nature has to be considered as a series of services that benefit humans. “The rest, that does not benefit humans is considered useless and not worth preserving,” Hache says. These services are valued in monetary terms, and transformed into financial instruments with which investors can speculate.
In 2019, Hache wrote a paper titled, “50 Shades of Green: The Fallacy of Environmental Markets”. In it, he writes that,
Nature is being reconceptualised as natural capital, ecosystems are being reframed as services to humans, unbundled, abstracted from time and place, quantified and valued in monetary terms.
“What is being measured is not nature,” Hache notes, “but only a few selected services, while the rest is willfully ignored, for simplicity’s purposes.”
So a river becomes “recreational fishing services”, under this approach. The way that a price is put on these services are simplistic and biased, relying on surveys that ask “How much are you willing to pay for the park next to you to still exist next year?”
“As a result,” Hache says, “the values that are being produced do not represent nature, and not even a proxy. For all the talk of putting a price on nature, this is not what is actually being done. Because it cannot be done.”
The European Commission has valued nature in the EU at €234 billion. “What does this figure mean, since we cannot live without nature?” Hache asks. He adds that the figure represents about one month of revenues for the oil and gas sector. “Does such a figure help preserve nature, or does it facilitate its destruction?”
Offsetting
Hache describes offsetting as follows:
“Instead of reducing our own emissions and destruction we’ll plant a few trees, most of them in developing countries where the land is cheap and claim incorrectly that it compensates for our climate inaction and biodiversity destruction.”
Hache gives the example of a developer who wants to build an airport in the south of Spain in flamingo habitat. Hache lists three cases:
Binding regulation: The developer would be told, “No you cannot build your airport here, you have to do it somewhere else.”1
Biodiversity offsetting: The developer would be told, “You can build your airport, but you have to recreate habitat for flamingos within 10 kilometres.” Even though we know in reality we cannot recreate the ecosystem being destroyed.
Habitat banking (which is being promoted by the European Commission): The developer would be told, “You can build your airport, but you need to compensate somewhere in Europe, or in the world, and not by creating a habitat for flamingos, but by an ecosystemic service of equivalent monetary value.” So the developer could, say, create a habitat for bats in Greece.
“Of course,” Hache comments, “we all know that more bats do not equal less flamingos. Just like carbon sequestration in trees for a few decades does not compensate fossil fuel emissions that stay in the atmosphere for more than 100 years.”
Hache adds that,
By definition, offsets are not about curbing destruction, nor about restoration, but about enabling future destruction in order to protect economic growth.
And he raises the issue of human rights abuses associated with offsetting projects, from murder, to rape, to torture. Offsets create a strong risk of land grabbing, and a major risk for food security, due to the enormous area of land required for offsetting that would no longer be available for agriculture.
“This might explain why offsets are now being called nature-based solutions, one of these fluffy and conveniently vague terms, as most people have now realised that offsetting does not work,” Hache says.
Tradable financial instruments
Hache gives the example of a tree planting scheme that creates offset credits, giving the right to emit or destroy elsewhere. Before the credits are used, they are freely tradable. Investors can buy and sell them as they wish, and speculate on their future price.
“These credits are also repackaged into so-called sustainable financial products,” Hache says.
Imagine an investment firm that invests in dirty activities, but then purchases these assets and then claims that its fund is green. . . .
There is an incredible appetite from investors for these new green financial products. And therefore the multiplier effect of sustainable finance cannot be overstated. Repackaging these offsets into a sustainable financial product will indeed attract a big share of the €25 trillion of assets under management in Europe to this type of project.
Hache points out the massive change of scale that this flood of finance will have for offset projects. To illustrate his point, he refers to a 2020 report from the World Economic Forum, titled, “The Future Of Nature And Business”. The report argues that climate and biodiversity finance “could unlock US$10 trillion of business opportunities”.
Hache quotes Tariq Fancy, the ex-CIO for Sustainable Investing at BlackRock, who recently wrote a three–part series about the problems with “sustainable investing”. Fancy concludes that, “Sustainable investing is becoming a deadly distraction.”
Hache says, “Offsetting is not new, but the next 12 months will see a complete change of scale for environmental markets, from niche and dysfunctional markets to a new asset class for pension funds.”
The European carbon market is expanding. China has launched a gigantic carbon market. CORSIA, the aviation industry’s carbon trading scheme, is starting this year. A new international carbon market could be finalised at UN climate meeting in Glasgow (COP 26). The Convention on Biodiversity meeting next year could see the launch of biodiversity offsetting.
“As if that was not enough,” Hache continues, “the financialisation is now expanding even more, beyond nature and to human life.”
“A new concept of of human capital is being implemented, according to which human life is being valued based on future expected salaries. Which means that the life of a banker is worth more than the life of a nurse. And the life of a French person is worth more than the life of an African. While this may sound like a bad dystopian novel, this is official UK government policy since February, and this is also being currently implemented in New Zealand, Canada, and China.”
This approach is presented as part of new sustainable indicators such as “inclusive wealth”, or “well-being indicators”.
Hache concludes by saying that,
This dramatic expansion of financialisation is presented as a solution to climate change, biodiversity loss, and social issues. It is really ultimately about maintaining the status quo in developed countries, instead of questioning and changing our way of life, and paying someone else to compensate.
It is really worth noting that for all this talk about sustainable finance, it is expected to take place mostly in developing countries where the biodiversity rich tropical forest and stretched public finances are deemed to provide tremendous economic opportunities for global private finance.
In this sense, this story is not new at all. We will buy cheap land in developing countries, plant a few trees, claim incorrectly that they compensate for climate inaction in developed countries, and open up new markets for private foreign investors in the process.
And what would be the real solution is also not new at all, it is about changing our way of life and curbing our emissions and destruction.
The real solution is not more finance, whether sustainable or not, but less finance and more regulations mandating a phasing out of fossil fuel and destruction. The rise of false solutions means that now more than ever it is essential that we look not at headline grabbing ambitions, but that we also look at and challenge the how.
Of course if the legislators were serious about addressing the climate crisis, the answer might be along the lines of, “No new airports.” Instead developers could focus on redeveloping city centres to include new cycling routes and more public transport, or building new recycling centres, and wind and solar plants.