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Why is the Dasgupta Review on the Economics of Biodiversity a big deal?

December 8, 2020 por Gregory Watson Leave a Comment


The United Kingdom’s Treasury (economic and finance ministry) is gearing up to launch an independent global report on the importance of biodiversity for economies and future prosperity. Led by Professor Sir Partha Dasgupta, the Dasgupta Review on the Economics of Biodiversity could help precipitate a major rethink on how we value biodiversity and its implications for policy and natural capital finance. 

With funds from the UK’s Department of Environment, Food and Rural Affairs, the IDB commissioned reports that demonstrate various examples, models, and insights from Latin America and the Caribbean to serve as contributions to the Review’s work, which will also be released soon.

In anticipation of the Review’s launch in early 2021, I spoke to Sandy Sheard, Deputy Director and Head of the Review Team at UK Treasury, to discuss the review and why it matters as countries look to increase ambition to confront the climate and ecological crisis and recovery from the pandemic. Our conversation has been edited for length and clarity.

GW: Sandy, thanks so much for discussing the Review with us! Can you provide an overview of what the Review aims to do and the main intellectual arguments underpinning it?

Sandy Sheard: Thank you Greg and may I start by saying how grateful we are for the IDB’s support over the last 18 months! The Review will set out a comprehensive framework for understanding the economics of biodiversity and signal the actions required to ensure we use Nature more sustainably.

The Review makes three powerful arguments. It’s starting point is to view nature as an asset, just as people and produced capital are assets. Whereas we are happy to invest in infrastructure and healthcare, we continue to underinvest in nature. In fact, we are depleting vital ecosystems including forests (in some cases to the point of collapse), which carries significant risks for countries.

Therefore, the first of Professor Dasgupta’s arguments is that we have a portfolio asset management problem that urgently needs addressing. The role of biodiversity within this asset management framing is analogous to the role played by diversity within a traditional portfolio of financial assets: it reduces risk and uncertainty. Biodiversity is critical because it both increases Nature’s productivity and enhances its resilience to stresses and shocks.

Second, this is fundamentally a problem of supply and demand. Estimates of our total impact on Nature suggest that we would require 1.6 Earths to maintain the world’s current living standards. We call this imbalance between our demands and Nature’s supply the ‘Impact Inequality’. To sustain our natural assets and avoid net degradation, our demands must become equal to, or less than, Nature’s ability to regenerate and supply the goods and services we rely on.

Lastly, we must recognize that our economies are embedded within Nature. Most standard models of economic growth and development detach Nature from humanity and fail to recognize its limits. The Review looks at what we know about how ecosystems function, which can help us to understand the ways in which the economy is bounded by Nature and what really constitutes sustainable growth.

GW: It is both striking and important that a report of this kind was commissioned by a Ministry of Finance. Why did the UK Treasury decide to undertake this work? And who are the main audiences?

SS: Troublingly, many recent studies show humanity’s destructive relationship with Nature. While I can’t speak for ministers, I imagine that led to a recognition that we need to better understand the issues and the implications for our economies. It also builds on the tradition that brought us the Stern Review on the Economics of Climate Change in 2006. It is vital for institutions like the UK’s Treasury to show leadership and to look for answers to these complex and system-wide economic conundrums.

One of our main audiences is governments, particularly economic and finance ministries. Our focus also extends to economic and financial decision makers who can accelerate action. Businesses and private finance are waking up to the huge financial risk posed by rapid biodiversity loss, and we are now seeing more organizations getting involved. The financial sector – including multilateral development banks – have a huge role to play, and we hope that the Review can help to guide their transition towards sustainable engagement with Nature. And if you asked Professor Dasgupta this question, he would go further and say that our audience is the concerned citizen. Each of us is an asset manager and our investment and consumer choices matter deeply.

GW: How do you hope Ministries of Finance will use this report? What sorts of activities do you think ministries should undertake?

SS: Finance ministries are critical players. For example, they design economic strategy, direct and influence investment, reform subsidies, and introduce clear standards and regulations, making them instrumental to addressing biodiversity loss. Let me expand on three actions.  

First, finance ministries have a significant role to play in addressing the mismatch between our global demands on Nature and what it can sustainably supply. Globally, governments funnel roughly $500 billion annually into projects that are potentially harmful to biodiversity – a figure that dwarfs our investment into natural capital. Ministries can lead in directing investment towards natural capital and can influence the private finance sector to do the same. Encouragingly, the Review highlights evidence that investment in natural assets, which tends to be labor intensive, could help boost employment and support a green and inclusive recovery from COVID-19.

Second, to use their tools effectively, governments’ economic models must incorporate Nature and account for the impact on Nature of other economic interactions. I know that at the IDB you are already supporting governments to apply the Integrated Economic-Environmental Modeling Platform to help fuse natural capital into policy and investment decision making. It is important that the application of such models becomes the norm. Finally, we need governments to re-assess economic measures of success. An economy might well record high GDP growth rates yet simultaneously damage its natural asset base. The Review demonstrates that in order to judge whether development is sustainable, an inclusive measure of wealth is needed. By measuring our wealth in terms of all assets, including natural assets, ‘inclusive wealth’ provides a more coherent measure of growth. There is no one size fits all model, but we will set out broader ‘Options for Change’ that can help galvanize policy actions across government and industry.

GW: This year and next are critical for action on biodiversity and climate. The UK presidency of COP26 will have a focus on nature, and the Convention on Biological Diversity is also working to develop new targets for countries at COP15. How do you see the role of the Review in contributing to the international push to mainstream biodiversity?

SS: Next year will be hugely important for addressing the intimately linked issues of biodiversity loss and climate change. Time is evaporating with many ecosystems already at risk of reaching ‘tipping points’. I hope the Review will contribute to the international push in several ways. It can lend weight to existing calls for action by demonstrating the very real economic consequences of inaction, and it will inform discussions and decisions on the steps we must collectively take. By providing a robust intellectual framework for thinking about mainstream economics in a way that includes Nature, I believe the Review can also help to shift the way we make policy, internationally, nationally and locally.

GW: At the IDB, our Board recently approved a plan to develop a mainstreaming strategy for Biodiversity and Natural Capital, both in our own operations and in countries. What do you see as the role of the IDB in helping to take the review from theory to implementation and practice?

SS: The importance of MDBs like the IDB taking the lead on addressing biodiversity loss cannot be underestimated, and I’m very encouraged by this progress! While the Review provides the framework for thinking about the economy and Nature, it is institutions like the IDB that are the key to embedding that framework and driving the agenda forwards. The IDB is particularly well placed, given the expertise you have and LAC’s unique biological richness. With over 40% of the word’s biodiversity, the region is an ecological superpower. The Review explores several success stories in the region to conserve these remarkable assets, and we look forward to seeing more successful projects supported by the IDB.

GW: Thanks very much Sandy for these wonderful responses. We look forward to the launch of the Review in 2021!

Note: To coincide with the launch of the Review, the IDB will publish further articles highlighting its main conclusions, why it matters for LAC, and exploring its utility for policymakers.  Stay tuned!

Photo credit: Camila Idrovo

Further reading:

For more information on the Dasgupta Review visit this UK government webpage.

Can nature support a green and inclusive economic recovery?

Increasing Infrastructure Resilience with Nature-Based Solutions (NbS) 

Nature-based Solutions: Scaling Private Sector Uptake for Climate Resilient Infrastructure in Latin America and the Caribbean 

Follow us on Twitter: @BIDCambioClima 



Filed Under: Ecosystems and Biodiversity Tagged With: Natural Capital, sustainable recovery

Gregory Watson

Gregory Watson leads the IDB's Natural Capital Lab program, funded by the French and UK governments. It works with the IDB Group and partners to drive innovation in financing natural capital and promote the incorporation of biodiversity. It incubates, accelerates and scales new solutions to pressing environmental problems, looking to nature as an asset. Previously, Greg worked at the IDB Lab, where he led the IDB's first equity investment in oceans, an equity investment in a silvopastoral system in Macaúba, developed the first Habitat Bank in Latin America and the Caribbean, supported an asset class for of natural capital and the US$20 million Climate Fund Investment Project for Forests. He also created the EcoMicro green microfinance program, conceptualized Climatescopio and the world's first private sector FIP project in Mexico. Mr. Watson holds a master's degree from the Fletcher School of Law and Diplomacy and a bachelor's degree from Tufts University.

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