Earth’s Central Bank: The Economic Case for Sustainability
Many find solace in the compartmentalization of finance and nature. While finance is the dry tinder of numbers and spreadsheets that pays the bills, nature is where we find beauty and escape from the drudgery of the prior. Most believe these realms exist separately but in the immortal words of George Costanza, worlds can collide. Unfortunately, too little attention has been given to the economic value of the natural world, leading to a lack of stewardship for the very engine that drives the global economy and our investment portfolios.
In the realm of ecological economics, efforts are underway to recognize the value of "ecosystem services" – the critical benefits provided by the natural world to support human well-being and economies worldwide. For example:
Bees (along with butterflies, birds, and other pollinators) play a crucial role in pollinating plants and the production of many food crops. Without adequate pollination, many crops would suffer significant yield losses, leading to food shortages and higher prices. It’s a contribution of approximately $34B each year to the US economy alone.1
Many pharmaceuticals and biotechnology products are derived from natural resources and ecosystems. Let’s not forget that we have mold to thank for penicillin and many other antibiotics, a global market worth $40B annually.2
There are countless other examples including the provision of fresh water, protein from wild fisheries, and tourist attractions in the form of national parks and wildlife. How much is it all worth when we add it up? Robert Costanza et al. (no relation to the before mentioned George) estimated the economic value of global ecosystem services could be as high as $125 trillion/year.3
Capital markets depend on these ecosystem services and price assets as if they will always be there, but unfortunately, this may not be the case. Researchers estimate that the economic value of global ecosystem services has declined somewhere between $4.3 and $20.2 trillion/year from 1997 to 2011.3
Imagine Earth as a central bank that consistently injects $125 trillion of stimulus into the global economy year after year. What if the chair of that central bank went on TV to announce the stimulus will be reduced by as little as 3.4% and as much as 16.2% each year moving forward? How would markets react? Given the volatility associated with quarter point interest rate hikes, I think we can assume it would not be beneficial to the economy or the average investment portfolio.
This is ultimately what sustainability is all about, where the pigments of the natural world and the financial system blend to become a rich new color. Detractors often view sustainability as antithetical to profit and economic growth. Quite the opposite. Sustainability, the conservation of land and the reduction of pollution for example, is intended to “sustain” our way of life, including our economy. Conversely, to knowingly degrade the ecosystem services that support all capital markets is to willingly reject the stimulus of Earth’s central bank with no viable plan on how to prosper in its absence. Sustainability is not just about preserving far off landscapes and wildlife, it’s about preserving our way of life, economically as well as culturally, for ourselves and future generations.
1 University of Pittsburgh. 2021. "The Business of Bees: The Economic Value of Insect Pollination Services is Much Higher than Previously Thought in the US." ScienceDaily, February 3. www.sciencedaily.com/releases/2021/02/210203144555.htm
2 BCC Research. 2023. “Antibiotics: Technologies and Global Markets.” BBC Research, June. https://www.bccresearch.com/market-research/pharmaceuticals/antibiotics-tech-market-report.html#:~:text=Report%20Highlights,forecast%20period%20of%202022%2D2027
3 Costanza, Robert, Rudolf de Groot, Paul Sutton, Sander van der Ploeg, Sharolyn J. Anderson, Ida Kubiszewski, Stephen Farber, and R. Kerry Turner. 2014. “Changes in the Global Value of Ecosystem Services.” Global Environmental Change, Volume 26, Pages 152-158. https://doi.org/10.1016/j.gloenvcha.2014.04.002.
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