By Ekkehard Ernst, ILO Research Department and Geneva Macro Labs
Countries in the Global South dispose of a wealth of natural resources. Yet, many of them are also among the least developed. In the following I will argue that we have the tools to ensure that restoring and maintaining this astonishing biodiversity will enable these countries to reach middle-income status over the next decade, at the same time safeguarding our survival.
Take the Democratic Republic of Congo (DRC), for example. With an annual income level of less than USD 600 per capita, it ranks among the poorest countries in the world. It is also home to the second-largest rainforest in the world and around 40 000 forest elephants; a wealth of natural capital with enormous potential for development. Just by preserving its current population of elephants, the DRC could add almost USD 1 500 to its current per capita income, a 250% increase. Reforestation efforts could be worth just as much. This could result in an extraordinary improvement in people’s livelihoods and wellbeing, benefiting not just the urban elite but also a large part of the DRC’s rural population by properly rewarding their contributions for such reforestation efforts.
But how can this be achieved? More than ever, the world is committed to tackling climate change and to reaching the goal of “net zero” by 2050. Restoring and maintaining biodiversity are an important means to achieve this goal. Elephants, rainforests, mangroves, blue whales and other forms of natural wealth are all major carbon sinks. By absorbing CO2 from the atmosphere and storing them in their bodies, these natural ecosystems contribute greatly to stabilising our climate. With the cost of carbon priced at USD 50 per ton of CO2 in 2019, the capacity of a single elephant to absorb carbon emissions was estimated at an equivalent of USD 1.7 million over its lifetime. As such, simply maintaining the stock of elephants left in DRC would yield an additional annual income of almost USD 4 billion.
Right now, however, countries like the DRC have limited options for exploiting their natural wealth. Most involve destroying the country’s natural assets: cutting down rainforests to extract timber, clearing up mangroves to build tourist resorts and hunting elephants to sell their ivory. Short-term (and often small) economic benefits are prioritised over longer-term and more widely shared economic, social and ecological advantages.
There have been efforts in the past to promote a different approach. The concept of debt-for-nature swaps for instance – reducing a country’s sovereign debt in exchange for nature preservation – emerged in the 1960s and was used for the first time in Bolivia in 1987. Although interest in these has revived very recently, they have not been widely used and have so far not been particularly successful in preserving nature. The reason is simple: debt-for-nature swaps are based on input costs rather than how much these conservation efforts contribute to improved eco services. Whether a country is doing a great or a poor job at preserving its natural assets, the amount of debt reduction remains the same.
A different approach to natural capital is needed; one that values eco services and restores incentives for ecological preservation. One that can tap into the natural wealth of countries like the DRC; countries that are currently struggling with spiralling sovereign debt and failing to provide basic public services and generate decent work for their citizens. Such a new paradigm will require to make it financially attractive to preserve nature rather than destroy it; to economically value nature’s services when alive rather than consumed. Market creation is at the heart of this new paradigm of natural capital valuation, based on four dimensions:
First, a well-functioning, liquid market for carbon credits. For now, the market is too small and too volatile to provide sufficient and stable returns for recipient institutions. As mentioned, calculations in 2019 estimated that an elephant’s value in terms of carbon capture was equivalent to USD 1.7 million over its lifetime. This value has already doubled today with the current price of carbon. And if you believe what some climate researchers suggest, the true price of carbon should be double what it is currently. So far, therefore, the market still needs to mature through an offsetting mechanism to prevent volatility.
Second, sustainability finance needs to be further supported by a proper framework to identify and assess efforts undertaken to support a green transition. Too often, existing asset classes are being re-labelled as “green” according to highly dubious standards. Even if the underlying asset is indeed green, existing economic activities are being rewarded for being a little less polluting than before. Initiatives to value natural assets, however, often don’t make it into the investor pool because they are “too” innovative. A real effort to build new impact investment funds to provide seed and venture capital for start-ups and high-risk initiatives in this area is necessary.
Third, we need to develop ways of properly measuring the impact of conservation and restauration efforts on maintaining and growing local ecosystems. Reforestation projects and local ecosystem maintenance are relatively easy to monitor, but entire countries’ ecosystem contributions are much more difficult to assess, especially in countries that lack administrative capacity. And when we look at other global public goods such as ocean assets, there is often no obvious custodian other than the “global community”. Both technological and institutional innovations are needed to address these issues.
Finally, we need to implement mechanisms to ensure that the funds released reach the actors on the ground who are helping to restore and maintain eco-systems. We are fortunate that new digital innovations to better control and enforce standards along supply chains have emerged over the last decade. Blockchain applications, in particular, offer new opportunities for traceability and standard verification that allow funds to be channelled directly rather than through a myriad of intermediaries that each take a cut. Ideally, scaling up these systems could also support governments in monitoring local efforts without having to use many additional resources. So far, however, these financial innovations are only available to the most sophisticated investors in a small number of advanced economies. Mainstreaming these financial products is, therefore, an essential part of making sure that local and rural communities benefit from investments in their countries’ natural capital.
Many people in the DRC and other developing countries – women more often than men – work in the informal economy, mostly in agriculture, and hence are closely involved in activities directly relevant to restoring and maintaining eco-systems. Empowering people in these sectors brings huge benefits for decent work and inclusiveness, opening up the exciting possibility of a triple win: for the climate, for countries and for vulnerable communities.