Dasgupta Review: financial markets have failed the natural environment
The Dasgupta Review is the most important document you will read this year. The future of the natural environment depends on it. An urgent Government response is needed.
Free market economies driven by financial metrics are damaging the natural environment by failing to place a value on natural assets. The system is broken and needs urgent reform.
This is the key message from The Economics of Biodiversity: The Dasgupta Review by Sir Partha Sarathi Dasgupta. The Review was commissioned in 2019 by HM Treasury.
“We are facing a global crisis. We are totally dependent upon the natural world. It supplies us with every oxygen-laden breath we take and every mouthful of food we eat. But we are currently damaging it so profoundly that many of its natural systems are now on the verge of breakdown,” said Sir David Attenborough writing in the foreword.
Nature provides the basis to sustain human life, spiritual fulfilment, and wellbeing. In return we use it as a dump for waste including carbon dioxide, plastic, and other pollutants.
Dasgupta suggests that COVID-19 is an early warning sign of our failure to value the natural environment.
The Dasgupta Review is a 600-page document that page by page makes the case for why capitalism is destroying the natural environment and what we can do about it.
Markets don’t value the natural environment
The data is irrefutable and uncomfortable reading.
“Estimates show that between 1992 and 2014, produced capital per person doubled, and human capital per person increased by about 13% globally; but the stock of natural capital per person declined by nearly 40%.
“Estimates of our total impact on nature suggest that we would require 1.6 earths to maintain the world’s current living standards.”
The value of nature to society isn’t priced into markets because it hasn’t been assigned a financial value. It doesn’t appear on a profit and loss statement or balance sheet leading to a distortion in value.
Dasgupta says that a conservative estimate of the total cost globally of subsidies that damage nature is around $4 to 6 trillion per year.
Instead, the natural environment is reliant on regulatory protection. But Governments make the situation worse by paying organisations to exploit nature.
Double Movement called for organisations to account for natural assets in 1940’s
Karl Polanyi originally made the case for societal protection against markets. In his book The Great Transformation (Farrar & Rinehart, 1944) he argued that the health and wellbeing of a society was critical to a sustainable economy.
Polanyi’s so-called Double Movement called for the regulatory protection of assets that could not be valued by a financial market, such as natural assets and human capital.
Unfortunately, free market economist Milton Friedman won the argument leading to the failure we see today to account for the natural environment in our financial systems.
Purpose porn: alternative metrics for financial success
There is a movement within management for organisations to account for their value to society beyond economic return. It has led to the rise of purpose and alternative metrics such as environment, society, and governance (ESG).
Purpose statements provide a warm corporate cosy feeling. They are a leadership lever and motivational tool but are ultimately meaningless while financial performance and shareholder value remain the primary metric of organisational success.
Urgent action on environment needed
Dasgupta calls for urgent change and a fundamental reappraisal of organisation success.
“A sustainable path will require transformative change, underpinned by levels of ambition, coordination and political will akin to, or even greater than, those of the Marshall Plan,” he says.
The report sets out three areas of action.
Ensure that our demands on nature do not exceed its supply, and that we increase Nature’s supply relative to its current level
Change our measures of economic success to guide us on a more sustainable path
Transform our institutions and systems – in particular our finance and education systems – to enable these changes and sustain them for future generations
Throughout the report Dasgupta highlights case studies of success. But immediate action and societal response is required. An urgent Government response is needed following the COVID-19 pandemic. The alternative is unimaginable.
Download the report
You can download The Economics of Biodiversity: The Dasgupta Review from the HM Treasury website. A synopsis is also available.
