Biodiversity conservation, financialisation and equity: some currents and concerns

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1. On elephants and economics

In 1993, Australian ecologist Graeme Caughley published a paper on elephant conservation and market reasoning in Conservation Biology.1 Responding to proposals that clear ownership designations and the ability to sell harvested ivory on a free market would incentivise the conservation of African elephants, he showed that this approach might instead encourage the liquidation, i.e., the extinction, of this ‘asset’. This was because interest rates on money stored in bank accounts were higher than the replacement rates of harvestable populations for elephants. Given the high price of ivory and the low rates of replacement for elephants, free-market logic meant it would be most rational to convert the asset of elephants into saleable ivory and deposit the proceeds, so as to accrue income at higher interest. In economic parlance, without government resources to subsidise incomes from elephant conservation a market in this case would act as a perverse incentive, contributing to the destruction of the very thing it was intended to conserve.

This example illustrates the care needed when supporting the conceptual conversion of biological species and ecosystems into capital assets that can be freely traded on markets or spliced into derived commodities. Perhaps more importantly, it highlights that when nature aspects are converted into a dollar sign in a capitalist market economy, it may be the dollar that is valued, not the nature. As well as diluting other reasons for caring for nonhuman nature, this is highly relevant in a financialised economy that rewards money products and their brokers, and that tends towards speculative and volatile dynamics.2 Current economic structures and dynamics suggest that when entities are configured as money-bearing assets they tend to move towards existing and inequitable concentrations of capital, and thus to become subject to unstable gains and losses associated with capital markets. Recent crises in the financial sector and the deleterious impacts of repeated bailouts from public sector coffers, as well as on the livelihoods of many, signal warnings regarding the incorporation of conserved nature ‘assets’ into financial(ised) domains.

Current approaches in conservation that designate what nature is worth in monetary terms, and that create tradable and financialisable assets from this, warrant clarification of both their ideology and their possible social and ecological effects. This paper is an attempt to speak to this situation. Many of the resources referenced in the endnotes are available online for further consultation.3


2. ‘What I$ nature WORTH?’4: Incorporating environmental health and harm

The third Global Biodiversity Outlook report, released in 2010 by the Secretariat of the United Nations Convention on Biological Diversity (CBD), confirmed what many suspected: that the target set in 2002 for a reduction, by 2010, of the current rate of biodiversity loss had not been met. The Conference of the Parties (COP) to the CBD in Nagoya, Japan, in 2010 thus renewed commitment to reductions in the rate of loss. This means attending to the varied drivers of this loss, including habitat transformation due to economic growth and development. Target 5 of the Aichi Targets adopted at Nagoya seeks at least a halving of the rate of loss of all natural habitats by 2020. It is considered that this will require a scaling-up of financial resources, as emphasised in Target 20 on the ‘mobilization of financial resources’. The Annex to the COP’s Strategic Plan for Biodiversity in 2011-2020 speaks additionally of the possibility that ‘innovative mechanisms’ might assist with meeting resource mobilisation needs. These terms have generated something of a fizz of interest around what exactly might constitute ‘innovative financing mechanisms’ (IFMs) for biodiversity conservation, together with what may be the roles of the corporate and financial sectors in designing these mechanisms.5

In this context, much attention is currently devoted to the question of how much nature is worth. Ecological economist Robert Costanza and colleagues estimated in 1997 that the annual value of ‘ecosystem services’ globally is between $16-54 trillion.6 Such statements of nature’s monetary value now abound. The expanding discipline of Environmental Economics, under the leadership of David Pearce, former advisor to Conservative UK Prime Minister Margaret Thatcher, asserts that attributing monetary value to nature health and harm will encourage incorporation of these ‘externalities’ into market-based economic decision-making. The suggestion is that with clear property rights and appropriate state regulatory intervention, economic valuation of impacted environmental measures will incentivise business and policy choices that are efficiently oriented towards environmental sustainability.7

The recent European Union and UN programme on The Economics of Ecosystems and Biodiversity (TEEB) gives new impetus to the incorporation of monetised ecological values into national and corporate decision-making and accounting practices, and is welcomed as such in the CBD’s current Strategic Plan. TEEB’s recommendations are now being applied in varied contexts. Thus, the financial firm KPMG has teamed with Flora and Fauna International and the United Nations Environment Programme Finance Initiative (UNEP FI) to enhance climate change and sustainability services, with a view to understanding the competitive advantages gained from responding proactively to the risk of ‘Biodiversity and Ecosystem Services (BES) Degradation’.8 The UNEP FI’s banking commission has issued a guide for practitioners in the banking sector regarding ‘the meaning and implementation of sustainability’. This guide emphasises ‘the business drivers for sustainability’ and a belief in the achievement of ‘sustainable development’ through ‘allowing markets to work within an appropriate framework of cost efficient regulations and economic instruments’.9 And the World Business Council for Sustainable Development (WBCSD),10 together with PricewaterhouseCoopers11, the International Union for the Conservation of Nature (IUCN) and Environmental Resources Management (ERM)12, recently (2011) published a Guide to Corporate Ecosystem Evaluation. This guide is intended as an accounting methodology to facilitate ‘better-informed business decisions by explicitly valuing both ecosystem degradation and the benefits provided by ecosystem services’.13

Such initiatives encourage the private sector to internalise the environmental costs of their endeavours, as well as the risk to their portfolios of environmental degradation. As a UNEP FI ‘CEO Briefing’ entitled Demystifying materiality (2010) affirms, the materiality of biodiversity and ecosystem services is increasingly acknowledged to be hardwired into finance, generating risk to portfolios through factors such as declining resource bases, enhanced government regulation and public demand for responsible practice.14

At the same time, disaggregating, monetising and accounting for nature in terms of owned and impacted ‘natural capital’ and ‘ecosystem services’ is also creating wealth-generating opportunities. The World Resources Institute advises that the monetising of nature measures permits treatment of ‘nature’s benefits as wealth-creating assets’.15 The World Bank Group suggests that predicted ‘future streams of payments for expected emissions reductions’ provided by standing forests under REDD+ (Reducing Emissions from Deforestation and Forest Degradation in Developing Countries) might be monetised and ‘serve as collateral to loans to finance the upfront investments in [REDD+] programs’, in effect creating ‘REDD+ bonds’.16 World Bank loan funding is also being directed to supporting countries such as the Republic of Congo become providers of monetised and marketable ‘environmental services to the emerging global markets’.17 This would include supplying forest carbon credits under a REDD+ mechanism, as well as through biodiversity offsets, the demand for which comes in part from ecological pressure exerted by extractive industry and plantation forestry, which are also supported by the World Bank.18 In the corporate world, the WBCSD claims that ‘sustainability-related global business opportunities in natural resources may be in the order of US$2-6 trillion per annum by 2050’.19

These statements represent current excitement around the possibility that proxies for various aspects of conserved or restored nonhuman nature can be monetised and mobilised as new capital-bearing assets. They reflect a ‘Green Economy20 ideology proposing that social equity and environmental sustainability are compatible with further economic growth and entrepreneurial activity. A pillar of this ideology is the transmutation of nature health and harm into tradable and financialisable capital assets. It is relevant, therefore, to ask how this is accomplished and to consider the possible equity, ethical and environmental effects.


3. Key steps towards the financialisation of environmental conservation

The following procedures pave the way for the treatment of aspects of conserved or restored nature as money-bearing assets.


(i) Numerical representation

First, nature needs to be conceptually ‘cut up’ into units that can be represented as numbers. These numbers, often referred to as ‘metrics’, act as surrogate or proxy measures that represent the ecosystem aspect under consideration for its conservation value. They require the mapping and reduction of complex ecological parameters – including the presence and population health of particular species, the condition of specific habitats, and the degree of biodiversity – into numerical scores considered to adequately capture particular dimensions of nature. A good and accessible example of the work required is provided by the UK’s Department for Environment, Food and Rural Affairs (DEFRA), who are currently devising a simple metrics for scoring terrestrial habitats, such that they can be brought into biodiversity offset exchanges for the mitigation of environmental harm due to economic development.21 Numerical representation creates apparent equivalence and commensurability between different locations and times. It is this symbolically created equivalence that permits trade-offs between sites of development and sites of conservation. Once aspects of conserved or restored nature have been symbolised as numbers, it becomes relatively easy for these ‘values’ to be turned into tradable monetary entities.


(ii) Monetisation

Monetisation here is the process whereby something can be converted into money, and thus behave as a commodity that can be exchanged for a monetary payment. A key strategy is the recent discursive shift towards the use of language that brings ecology into the domains of economics and accountancy. Terms such as ‘natural capital’ and ‘ecosystem services’ are powerful signifiers that encourage a vision of nature – in all its diversity, interconnectedness and nonlinear complexity – as collapsible into the simplifying value sphere of money. The use of metrics for turning aspects of nonhuman nature into numerical scores also facilitates the application of economic valuation methodologies. Monetised values for ‘ecosystem services’ tend to arise through methods such as contingent valuation, involving estimates of ‘willingness to pay’ for specified aspects of nature, or ‘benefit transfer’, whereby ecosystem service valuation is projected from unit values (dollar estimates of economic value on a per-unit basis) derived from particular use and non-use values measured at specific different sites. These generate numbers for nature measures that are in monetary terms, and thus can be used in cost-benefit analyses and cognate economic models. As noted by economists, however, they may also produce monetary values that are ad hoc, unreliable and even deceptive.22


(iii) The state as market facilitator

Legal markets require state participation in numerous ways. State regulation can generate demand, by establishing regulatory mechanisms that enforce development-related conservation measures. Governments ‘can engender market confidence by establishing the property status of [conservation] credits through legislation’.23 Their resources can be utilised in such a way as to create terms attractive to private sector investors and entrepreneurs, for example through tax breaks and subsidies. They can also provide regulatory certainty for maintenance of the value of environmental credits, thereby removing private sector risk in environmental markets. Examples include the UK government’s decision to set a floor price for carbon that protects low-carbon electricity investments (including nuclear), and the government promise that credits purchased now for currently unscheduled but imperilled species in the US will satisfy mitigation requirements for future land use activities if the species later becomes listed.24 Governments can also underwrite loans bound with nature assets such that these become investable by the private sector and can bailout institutions responsible for poorly conceived risk-management, lending and banking practices.25


4. Currents in financialised conservation

The above phenomena enable measures of nature health and harm to be marketised, capitalised and financialised in various ways. A rapidly expanding ‘product range’ of commodities and assets in nature health is appearing, including items such as biodiversity offsets, species credits, forest bonds, ecosystem services and perhaps even biodiversity derivatives. A parallel stream of variously privatised conservation and voluntary trades is creating biodiversity market options, alongside more conventional approaches for in situ conservation. For many these terms can be opaque and even bewildering. This chapter details some examples of these new nature products.


(i) Trading nature

Market-oriented ideology assumes that good environmental governance and the equitable distribution of environmental services will derive from the correct pricing of quantified environmental goods and services, combined with the self-regulating market behaviour that will emerge from their market exchange. A key logic is that such Payments for Ecosystem Services (PES) will compensate economic opportunity costs in contexts where environmental-use practices are altered so as to conserve ‘ecosystem services’. This might take the form of relatively simple direct payments for transformed behaviour to maintain a particular and clearly defined environmental good.

In water management, for example, the water available to those living downstream can be directly negatively affected by water users upstream and PES schemes may be established to alter upstream behaviour so as to maintain downstream water quality and access. Paradigmatic here is the case of Vittel (Nestlé Water) in north-east France, who came to a financial agreement to compensate farmers for altering their nitrate-based fertilising practices upstream which were contaminating the aquifer producing the bottled mineral water sold by the company.26 In this case the key parameters were relatively clear. They included the environmental good (uncontaminated water), the potential ‘servicers’ of that good (nitrate-using farmers), the environmental problem (contamination by nitrate-based fertilisers), and the purchaser of the environmental good (Vittel). Further critical factors are embodied here with implications for the applicability of such initiatives elsewhere and over broader geographical scales, such as between contexts in the urban industrialised North and the rural ‘underdeveloped’ South. The wealth of the purchasing company and the continued market value of its product provided economic sustenance for its interest in pursuing the ecosystem services exchange. The land constituting the source area for the water is enclosed as private property under clear tenure arrangements, permitting the establishment of relatively direct contracts between service purchasers and providers. And Vittel was able to collaborate with a professional and well-funded four-year research project on the connections between farming practices, water quality and potential collaborative alternatives, prior to the long-term establishment of a PES scheme. Even with these factors, the initiative cost Vittel some 24.25 million euros to develop in its first seven years (an estimated 980 euros per hectare per year),27 and it took some 10 years following the initial four-year period of research for the scheme to become operational.

PES schemes are being devised for complex public ecosystem goods such as forests and biodiversity, in situations with varied tenure arrangements. A dominant justification is that they will allow people to access new income from living in maintaining relationships with landscapes now valued nationally and globally, thus preventing their conversion into less desirable forms at the same time as permitting economic growth. Whether or not such redistributions occur in practice is context-dependent. As Esteve Corbera and colleagues observe, ‘markets are blunt instruments with respect to issues such as procedural fairness and equitable distribution’, and ‘those who benefit from the market exchange are not necessarily the direct resource users’.28 A compounding factor is the extent to which communities can assert property rights over newly tradable ecosystem service commodities. Formal market exchanges require inalienable property rights over traded commodities, and additional complexities are raised when these services are situated in non-formal common property regimes. Many existing national ecosystem services markets turn out to be possible largely through substantial government subsidies, and to direct resources disproportionately to larger landowners.29

New legislative structures also make it possible for developers to offset new environmental harms, through purchasing conservation activity on formally owned land areas elsewhere, and thereby trading environmental harm for environmental health.30 Although working through the mitigation hierarchy is encouraged, whereby harm is first avoided, mitigated and/or rehabilitated, the last resort of compensating for unavoidable harm can be justified in a planning application, as long as this is offset appropriately.31 Offsetting of development impacts on dimensions of ‘biodiversity’ has been occurring in US wetland mitigation banking since the 1970s32 and in US species banking since the 1990s33, and is currently proposed in support of a new biodiversity offsets initiative in the UK.

US species banking, for example, is oriented towards species protected under the Endangered Species Act (ESA), and is currently expanding to include imperilled but as yet unscheduled species.34 In US species banking, ‘species credits’ are awarded to offset providers by the regulators (the US Fish and Wildlife Service (FWS)) for the same species that will be harmed elsewhere through development. These credits tend to be based on proxy measures (such as acreage of appropriate habitat conserved, created or restored on owned land that becomes termed a ‘species bank’), and occasionally on actual populations of breeding pairs of the credited species. Currently species banks are on land areas in relatively close geographical proximity to the affected species population. In a survey in June 2010 of US species banking, most (107 of 123) banks were listed as preserving already conserved habitat.35 As such, species banks amplify the credit-bearing value of land areas under formal, usually private tenure, but it is not clear that they constitute conservation additionality in the sense of amplifying conservation effect beyond the ‘counter-factual’ scenario of there being no species bank.

Habitat banking in the UK has a slightly different emphasis in that it is being proposed precisely to facilitate a brokered trade in biodiversity offsets to mitigate the site impacts of economic development. In this context, application of a habitat scoring metric, which scores habitat condition as ‘poor’, ‘moderate’ or ‘good’, and biodiversity distinctiveness as ‘low’, ‘medium’ or ‘high’, facilitates the creation of equivalence between development and conservation sites that can be both geographically distant and of different temporal moments. Offset ‘[c]redits can be produced in advance of, and without ex-ante links to, the debits they compensate for, and [can be] stored over time’.36 This dimension mirrors forward-selling in the US wetland mitigation banking industry, in which conservation credits can be sold after sites have received their status as a conservation bank but prior to being able to demonstrate ecological performance compliance.37 In effect, this paves the way for development activity to happen in advance of conservation compliance, and as such is of conservation concern, particularly at a time when apparently rapid climate change adds complexity to the already difficult process of predicting successional dynamics in ecosystems.

As ecosystem values are transmuted into numerical ones, additional scoring ‘multipliers’ can be added into the mix. These deal with varied sources of risk, although as candidly noted by DEFRA, ‘[i]f the worst case risk is realised (i.e. if the restoration or expansion fails to deliver), a multiplier will not solve the problem’.38 Financial insurance is also proposed such that the offset provider could take out insurance against their failure to deliver the right number of units.39 Whether or not financial insurance and associated payouts can equate with the nature entities that may have been lost through development is another question.

Note that what is exchanged in these offsetting schemes are the numerical indicators proposed by metrics such as those described above. These may or may not provide a ‘good fit’ with the material natures they represent, and thus may or may not adequately represent the ecological measures being lost through development in specific places. Ecological theory and common sense suggest that offsets over large spatial and temporal distances are likely to fit less closely with specific impacts than those that are distance-near and with close temporal (i.e., successional) correspondence with impacted localities. Of course, no offset can fully replace the specific spatial and temporal ecological qualities of the individuals, populations, species and ecological relationships between these that stand to be harmed through development.


(ii) Nature markets

The conversion of nature aspects into numerical scores associated with monetary payments enables the creation of markets for conservation indicators. To establish and service these new markets, as well as to facilitate ‘price discovery’ through linking buyers and sellers, voluntary market exchanges for environmental conservation measures are being created by nature brokers and environmental-financial entrepreneurs. As promoted in a recent publication of the World Resources Institute, ‘[a]n independent market broker may create efficiencies and economies of scale by facilitating the buying and selling of credits, managing the financial transactions, providing liquidity in the market, verifying and monitoring credits, and managing the potential default of credits’.40 Entrepreneurs envisage the establishment of such markets as an expansionary endeavour, thus:

As a centre of global finance and trade, the UK can play a pivotal role in creating market rules that are workable and possess robust environmental integrity. […] Getting it right in the UK could transform the way we value nature and finance its protection globally. […] There is a unique opportunity to successfully render a working and effective system that can be replicated, improved and expanded across Europe and throughout the world.41

There are several forerunners in this field. The ‘Earth Exchange’42 of Mission MarketsTM43, whose founder and CEO has more than 20 years’ experience in capital markets on Wall Street (including a vice-presidency at Bear Stearns), is described at the time of writing as,

the first online platform facilitating transactions for multiple environmental credits and conservation finance mechanisms [in a context wherein] [c]urrent markets for ecosystem services have been estimated to be between $1.8 and $2.9 billion annually’ [and thus that] investments in the earth make great business.44

Mission MarketsTM has recently collaborated with the UK’s Environment Bank Ltd. to create an online conservation credit trading platform, hosted in the US, for the buying and selling of UK conservation credits, particularly biodiversity offsets.45 The Environment Bank is a private company established by professional ecologists who have been enthusiastic protagonists in stimulating a habitat banking and biodiversity offsets discourse in the UK.46 Described as an independent broker for the delivery of ‘mitigation and compensation schemes associated with planned development’47, it received £175,000 in 2011 from the Shell Foundation48 to assist with development of ecosystem service markets.49 The Chairman of The Environment Bank, Professor David Hill, who since 2011 has also been the Deputy Chairman of the UK government body Natural England, states that habitat banking,

is a definitive market mechanism [and that] the purchase of conservation credits will explicitly and transparently demonstrate developers [sic] commitment to the environment, and will deliver truly sustainable development.50

The promise of these new layers of environmental markets is attracting interest from investors. EKO Asset Management Partners, for example, is ‘a specialized investment firm focused on discovering and monetizing unrealized or unrecognized environmental assets’51, and aligning ‘smart capital with people, projects, and companies that are poised to profit from emerging markets for ecosystem services’.52 Similarly, the Terra Bella fund of Terra Global Capital is ‘a private investment fund specializing in assets from environmental markets’, with investments directed to ‘voluntary markets where regulations are uncertain or non-existent’, ‘emerging ecosystem markets’ and ‘under-valued derivative instruments on environmental assets’53. And Ecosystem Investment Partners (EIP) at the time of writing is

a private equity firm established in 2006 to capitalize on the Payments for Ecosystem Services (PES) markets surrounding wetland, stream, and endangered species habitat mitigation throughout the US.

In these examples, offset metrics create the promise of offset markets, in which numerical scores for nature aspects become purchased and traded as commodities, with financial expertise required and rewarded for the brokering of exchanges. Of course, the use of markets in which polluters can trade units of pollution (debits) for environmental credits elsewhere is a well-established approach for the mitigation of environmentally degrading development activity. Capped trades in SO2 credits under the US Clean Air Act, and in CO2 credits as part of the United Nations Framework Convention on Climate Change (UNFCCC), for example, encourage polluters to reduce emissions such that they can gain financially through trading allocated credits that are above their emissions requirement. In these markets it is to some extent relatively easy to represent the element being traded in numerical terms that can be monetised.54

It is harder in practical and ethical terms to create fungible units of species, habitats and biodiversity. These are indivisible and embedded as part of place-based ecological assemblages, and may embody millennia of maintaining practices enacted by peoples with which they also are historically and currently associated. Arguably, the conceptual ‘cutting up’ of these interrelationships into units for trading purposes is profoundly ‘unecological’. It also raises significant social justice implications by fostering a privatising trajectory that displaces the different tenure and value practices of peoples associated with current global locations of high biodiversity. The irony is that these practices often have effected greater long-term maintenance of ecological relationships and diversities than the economic developments that new trade in commodified conserved nature is now intended to ‘offset’.


(iii) Bonding nature

Once elements of nature have been conceived as units to which monetary value can attach, they can also be leveraged as a new class of capital asset. As such, they may become the collateral for capital-releasing loans that are bonded with the putative monetary value of the underlying nature aspect, as also discussed here. The Climate Bonds Initiative claims that ‘[t]he bond market is the great innovation that distinguishes western capitalism from previous economic systems’55. New environmental bond structures are proposed to utilise this innovation so as to ‘frontload’ future funds, thereby connecting investor finance now with infrastructural developments considered in time to enhance environmental sustainability. Climate Bonds and Green Bonds, for example, encourage borrowing against the future economic and environmental (especially climate) benefits predicted from these investments56. The World Bank Treasury currently issues a variety of bonds focused on climate-related goals, including ‘Cool Bonds’57, ‘Eco Bonds’58, and ‘Green Bonds’59. These bonds target an emerging class of investors in sustainability, interested in investing in companies whose ‘sustainability performance’ may be linked to financial ratings indices that include environmental proxies60.

Such innovations are stimulating applications of bond logic to biodiversity. A ‘high-level workshop’ to consider the development of bonds to finance ‘ecological infrastructure such as tropical forests’ – or ‘Forest Bonds’ – was hosted recently by the World Wide Fund for Nature (WWF), the Global Canopy Programme and the Climate Bonds Initiative, with the global investment banking and securities firm Goldman Sachs and the Swiss private bankers Lombard Odier as financial partners61 The proposal here is that public-sector funds and incentives such as tax breaks are used ‘to support private-sector investment in forests’. The ‘natural capital’ of tropical forests thus would be ‘materialised’ to ‘leverage additional finance from global capital markets’.

This capital in theory would be invested to pay for a country’s economic transition to forest-friendly eco-entrepreneurial activity, rather than in destructive land uses such as oil palm, soya and cattle-ranching62. Multilateral donors could also ‘play an additional catalytic role by issuing a forest bond themselves and helping to pump-prime the forest bond market’, thereby creating an attractive new investment frontier63. It is advised that ‘the investment proposition needs to be large and liquid to attract the largest investors’, with issuers such as the governments of forest-rich countries thereby raising ‘large-scale finance now that will be repaid by existing and anticipated future income’64. It is suggested that this income will derive from sources such as forest carbon revenue (which might include the advanced market value of emerging REDD+ credits for forest carbon, i.e., constituting ‘REDD+ bonds’), ecosystem service markets, sustainable timber and agriculture and taxes65. Whilst these proposals state that all ‘stakeholders’, including forest-dwelling peoples, should benefit appropriately, such proposals generate concerns regarding the transfer of forest conservation value to private investment capital. In particular, clarification is needed regarding what happens to this collateral in cases of default on payouts built into the bond, and corresponding fears of possible takeover and enclosure of this ‘natural capital’ by lenders in such circumstances. The documents cited here are opaque on this point, asserting, for example, that ‘[i]f for any reason … earmarked cash flows did not arise, the issuer would draw on other [unspecified] financial resources to meet its obligations’66.

Related proposals exist for communities in low-income nations to mortgage the environmental ‘values’ now associated with their land as collateral for affordable financial services provided by international investors in exchange for the conservation of mortgaged environments67. Questions again arise regarding who then possesses or has governing powers over the collateral (particularly in the case of default); how, exactly, greater indebtedness to the global monetary economy enhances local livelihoods; and how the pricing of local ecologies might intersect with other socially embedded environmental values.

World Bank economists have also considered the design of bond structures attractive to private investors in association with funding the conservation of specific charismatic species. ‘Tiger Bonds’, for example, have been proposed, again with the intention of frontloading future funds for subsequent repayment through the capitalisation of nature assets associated with tiger territories68. These assets might include future forest carbon revenues from the REDD+ mechanism as it plays out in such territories, or created through ‘[e]stablishing biodiversity as collateral for lending’69.


(iv)  Nature derivatives

As observed for the recently created market in carbon credits, the big money tends not to be in the credits themselves, but in poorly regulated voluntary and bespoke over-the-counter (OTC) trades in financialised products derived from these credits. Derivatives are financial instruments that promise payments derived from bets on the future value of something, known as the ‘underlying’70. Derivatives contracts permit businesses to ‘hedge against the occurrence of unpredictable adverse events’71. As such, they are associated with the construction and ‘securitisation’ of risk (including the risk of adverse environmental change) as a tradable commodity. They also permit speculative returns based on bets on the chances of the derivatives contract itself72, thus creating chimerical and unregulated ‘assets’ that are decoupled from any underlying, but nonetheless can have significant social and material effects. The use of derivatives to hide true liabilities was a key cause of the volatility associated with the recent and ongoing financial crisis, as acknowledged repeatedly in the final report of the US Financial Crisis Inquiry Commission, published in 201173. It is surprising, then, to see derivatives described as ‘[f]inancial products used to minimise volatility of cash flows’ and listed as amongst the ‘risk mitigation tools’ proposed for forest bonds74.

‘Biodiversity derivatives’ are a similarly perplexing proposition75. The suggestion here is that markets be used to reduce the costs of conservation by applying derivatives to the risk of species extinction. The proposal is that ‘governments issue modified derivatives contracts to sell species’ extinction risk to market investors and stakeholders, thus providing incentives that take ‘advantage of the market to reduce costs in conservation’76. It is argued that this will align the interests of conservationists, governments and landowners, by making species presence more valuable to landowners than modifying habitat through development. Contracts would be priced on current interest rates and the probability of a payout or default due to species decline below an agreed threshold. If triggered through species decline, the principal paid by investors would be made available for remediation and recovery of the species in advance of it being placed on an endangered species list. Biodiversity derivatives based on risk of species extinction would be akin to insurance derivatives ‘issued with modifications to allow responsible action to decrease the likelihood of the insured event’ (i.e., decline or extinction of a species) so as to encourage ‘social change that is incentivized through market forces’77. It seems perverse, however, to transform the value of species survival into a price whose rise or fall is entangled with bets on their susceptibility to irreversible loss, underscored by a calculus whereby species value rises with rarity, or greater risk of extinction. This is particularly so given broad views that gambling on prices creates ‘heightened volatility’78. Is this potential volatility desirable for species presence?

To date, as far as I am aware, there are few financial derivative products being traded specifically in units of conserved biodiversity. Nevertheless, as units of conserved or restored nature are leveraged as ‘natural capital’ in environmental markets, bonds and mortgages, these might also be linked with additional derived money-bearing products, as has occurred in markets for financial products derived from tradable carbon units79. Proposals such as biodiversity derivatives, for example, act to enhance ways in which environmental change, including the risk of species extinction and biodiversity decline, can become ‘a speculative opportunity like any other in a market hungry for critical events’80. Unregulated and poorly understood trade in derivatives leveraged on the subprime mortgage market spiralled into a  financial crisis and led to the foreclosure of the homes of many, even in the wealthy economy of the USA. It is unclear what the implications would be for livelihoods, landscapes and biodiversity if tradable products in conserved nature and debts leveraged on ‘natural capital’ in less developed countries were to become derived in this way; or how safeguards could be designed in what is an inherently opaque and poorly regulated area of finance.


5. Some concerns

The developments described above constitute significant inroads into the financialisation of biodiversity conservation, which add to heightened interest in the possibility for such choices to scale up financial resourcing for the sustenance of biodiversity. But these innovations are not without their problems. Here I focus on three areas of concern.


(i) Enhancing development-related harm

None of the above mechanisms would arise if there was no market demand for a monetised conserved nature. This raises paradoxes. Market demand here flows from the apparent unavoidability of development that is deleterious to nature health. The model is development-led: it requires ecological degradation in order for conservation units or credits to attain market value. This generates the conundrum whereby parameters of environmental health, including biodiversity, become more valuable as they become more scarce due, for example, to harmful development. Indeed, much of the domestic and international demand for marketable offsets that direct financial resources to aspects of environmental health is driven by growth in extractive and large-scale developments that are intrinsically harmful to environmental parameters such as biodiversity81. Offset structures thus may incentivise increased development-related environmental harm by increasing the mechanisms whereby such harm can seemingly be offset. In so doing, they act to foster the illusion that environmentally harmful development enhances environmental health.

Tradable value, i.e. price, tends to be positively related to scarcity, such that the tradable value of conserved nature also rises in conjunction with its growing scarcity. This is alarming since in species and biodiversity terms scarcity signals rarity and the risk of extinction. A simple illustration of this is the following statement promoting forward purchase of credits for ‘candidate species’ in US species banking markets: ‘the buyer can save the credits for later use to meet offset requirements if and when the species is listed under the ESA’82. The logic here seems to be to encourage buyers to buy early in order to benefit from a later likely scheduling of a species, which in turn creates a perverse incentive for the conditions whereby a species may indeed need to be designated as threatened. The binding of dynamic, nonlinear and complex assemblages of species with the very different value-creating logics of capital thus may institute a stunning own goal:  amplifying scarcity rather than abundance in aspects of nature health.


(ii) Enhancing inequity and associated drivers of biodiversity degradation

A key aspect of creating market-based approaches for conservation is the ability to purchase the permission to degrade environmental measures such as biodiversity in one location, through paying for the maintenance of a somehow equivalent ‘piece’ of environmental health elsewhere. This intentionally raises economic rents for land areas through the enhanced monetary values commanded by credit-bearing indicators of nature health at these sites. Rising economic rents tend to be accompanied by two connected phenomena: (1) an impetus to appropriate and privatise new sources of rent value, in order to capture the financial income that might accrue from their sale on markets; and (2) financial speculation on newly ‘rentable’ assets, so as to push up their market value.

History tells us that these processes tend to generate contexts whereby land, and today the newly ‘valued’ conservation entities associated with land areas, can become more valuable than the people on it. This is occurring in current land-grabbing for food and biofuel production, in which perceived scarcity, coupled with volatility in prices of agricultural commodities, is pricing out the poorest farmers from escalating markets for land rights83. Communal and collective forms of land tenure are being displaced by formalised leasehold exchanges between governments and corporate investors for newly privatised tracts of land. The effects of this are to erode long-established mixed food production systems that feed cultures variously embedded in rural areas. Recent research claims that a similar land-grabbing dynamic is occurring for conservation or ‘green’ land values in which the corresponding raising of money rents for parameters of environmental healthis pushing out poorer land users unable to either pay or command these rents84. As new eco-monetary values materialise in markets and as collateral for loans, they can thus act to raise economic rents for land areas formerly under different forms of tenure, value and livelihood which thereby become displaced. To add insult to injury, conservation-related displacements sometimes are also justified through framing long-term local land use practices as environmentally degrading85.

There are real issues here for biodiversity. Research suggests that economic inequality is a robust predictor of biodiversity loss86. Measurements of the Gini coefficient among countries and among US states in conjunction with biodiversity parameters indicate a sustained ‘connection between income inequality and biodiversity loss’ even ‘after controlling for biophysical conditions, human population size, and per capita GDP or income’87. One possible reason is that inequality may thwart the collective action required for the sustenance of public goods, making redistributive economic reform a prerequisite for effective conservation:

In general, unless current trends toward greater inequality are reversed, it may become increasingly hard to conserve the rich variety of the living world. Conversely, if we can learn to share economic resources more fairly with fellow members of our own species, it may help us to share ecological resources more fairly with our fellow species88.


(iii) Can money adequately convey the value of living entities and complexes?

The financialisation currents identified above assume that money is a good conveyor of nature value. For many, this is already a step into a particular constructed way of understanding the world that is infused with ideologically driven assumptions. Money is a homogenising force, and financial products become attractive to investors to the extent that they are standardised: thus, ‘[t]he more standardised and commoditised a forest bond is, the more attractive it will be to institutional investors’89. The derivation of biodiversity-related financial products requires systemic simplifications of nature’s complexity, to construct interchangeable metrics and proxies for biodiversity elements that are inherently noninterchangeable90. Simplifying and standardising measures have always been an imperial practice, through which what is measured is brought into the fold of colonising political,economic and management structures. Conversion of bioculturally diverse and ecologically complex landscapes into numerical and monetised metrics is a way of  instrumentalising peoples and nonhuman natures such that these conform to a homogenising system in which money is the mediator of all value. This is in tension with the different ecocultural systems associated with particular land areas, habitats and species assemblages, contributing to sometimes violent conflict as these value spheres become entangled.


6. Conclusion

When such concerns are raised they tend to be dismissed as ‘ideological opposition to markets’91, without recognising that market-based and financialising policies are themselves ideological. They foster certain trajectories in the distribution of monetised wealth, and also tend towards particular separations between human and nonhuman natures which seem antithetical to global ecological integrity. And so, to those involved directly with designing and supporting such policies and associated products, I make a plea for you to pause and ask the following questions:

  • How does the marketing and financialising of conserved nonhuman nature connect with a historical trajectory that consolidates capital, including ‘natural capital’, in the hands of a minority of people?
  • How might these approaches further disrupt the self-sufficiency of communities, or break the relationships binding diverse species into resilient ecological assemblages?
  • Do these ‘mechanisms’ enable us to live more gently, both with each other and with the mysterious diversity of species that are our companions here on earth?
  • Are they respectful to our ancestors, and do they transfer the most socio-ecological health possible forwards to our descendants?
  • Do they honour the life and sentience of living beings?
  • And do they create space for listening to, and learning from, the diverse other ways of knowing and living with ‘biodiversity’ embodied by peoples who value things differently?

Finally, if you have read this far, it remains only for me to thank you for your attention.



Mike Hannis, editor of The Land Magazine, and Gerard Sullivan have been generous with comments on an earlier version of this paper. Any errors of interpretation of course remain my own. Thank you especially to Yoke Ling Chee, Director of the Third World Network, for the invitation to contribute this text to the TWN’s Environment and Development Series.

First published as Sullivan, S. 2012 Financialisation, Biodiversity Conservation and Equity: Some Currents and Concerns. Environment and Development Series 16, Penang Malaysia: Third World Network. ISBN 978-967-5412-69-1.


Connected peer reviewed publications

Sullivan, S. 2019 Reading ‘Earth Incorporated’ through Caliban and the Witch, pp. 119-134 in Barbagallo, C., Beuret, N. and Harvie, D. (eds.) Commoning with Silvia Federici and George Caffentzis. London: Pluto Press.

Sullivan, S. 2018 Bonding nature(s)? Funds, financiers and values at the impact investing edge in environmental conservation, in Bracking, S., Fredriksen, A., Sullivan, S. and Woodhouse, P. (eds.) Valuing Development, Environment and Conservation: Creating Values that Matter. London: Routledge Explorations in Development Studies.

Sullivan, S. 2018 Making nature investable: from legibility to leverageability in fabricating ‘nature’ as ‘natural capital’. Science and Technology Studies 31(3): 47-76.

Sullivan, S. 2017 Natural capital, fairytales and ideology. Invited Review Essay, Development and Change 48(2): 397-423.

Sullivan, S. 2013 Banking nature? The spectacular financialisation of environmental conservation. Antipode 45(1): 198-217.

Sullivan, S. 2013 After the green rush? Biodiversity offsets, uranium power, and the ‘calculus of casualties’ in greening growth. Human Geography 6(1): 80-101.


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  3. All URLs were live at the time of writing in April 2012.
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  18. Ibid., p.13. The World Wide Fund for Nature thus is researching opportunities for biodiversity offsets to offset mining investments and impacts within the Republic of Congo.
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  29. cf. Vatn, A., Barton, D.N., Lindhjem, H., Movik, S., Ring, I. and Santos, R. 2011 Can markets protect biodiversity? An evaluation of different financial mechanisms. Noragric Report, 60; Fletcher, R. and Breitling, J. 2011 Market mechanism or subsidy in disguise? Governing payment for environmental services in Costa Rica. Geoforum 43(3): 402-411.
  30. See extensive discussion in Vatn et al., op. cit.
  31. See, for example, the Business and Biodiversity Offsets Programme (BBOP) 2009 Biodiversity Offset Design Handbook. Washington: BBOP, p. 3. Also see: ten Kate, K. 2003 Biodiversity offsets: mileage, methods and (maybe) markets. Background paper for discussion at Katoomba VI private meeting. Insight Investment; ten Kate, K., Bishop, J. and Bayon, R. (2004), Biodiversity Offsets: Views, Experience, and the Business Case. IUCN, Gland, Switzerland and Cambridge, UK and Insight Investment, London, UK (formerly at, pp. 9-10. The BBOP has recently published guidelines for the instituting of voluntary business standards for biodiversity offsets; see BBOP 2012 Standard on Biodiversity Offsets. Forest Trends.
  32. On which, see the US Environmental Protection Agency’s ‘mitigation fact sheets’, and the National Mitigation Banking Association website. For in-depth analyses of wetland mitigation banking, see Morgan Robertson’s work, for example: Robertson, M.M. 2006 The nature that capital can see: science, state, and market in the commodification of ecosystem services. Environment and Planning D: Society and Space, 24: 367-387; Robertson, M.M. 2011 Measurement and alienation: making a world of ecosystem services. Transactions of the Institute of British Geographers 37(3): 386-401.
  33. Formerly at, see For All Your Species Needs!.
  34. See Gartner et al., op. cit.
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  36. eftec, IEEP et al. 2010 The Use of Market-based Instruments for Biodiversity Protection –The Case of Habitat Banking – Technical Report, p. 9.
  37. See Robertson, M. and Hayden, N. 2008 Evaluation of a market in wetland credits: entrepreneurial wetland banking in Chicago. Conservation Biology, 22(3): 636-646.
  38. DEFRA 2011 Biodiversity Offsets Technical Paper: Proposed Metric for the Biodiversity Offsetting Pilot in England. London: DEFRA, p. 10.
  39. Ibid., pp. 9, 11; Kett, H. 2011 Ensuring mitigation by insuring banks. Ecosystem Marketplace
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  41. Caldecott, B. and Dickie, I. 2011 Habitat Banking: Scaling Up Private Investment in the Protection and Restoration of Our Natural World. London: eftec and Climate Change Capital (formerly at, see summary here.
  42. Formerly at
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  46. See, for example, Briggs, B.D.J., Hill, D.A. and Gillespie, R. 2009 Habitat banking: how it could work in the UK. Journal for Nature Conservation 17: 112-122.
  48., the UK registered charity of the energy and petrochemical conglomerate Shell. See Shell Foundation 2011 Trustees’ Report and Financial Statement for the Year Ended 31 December 2011, p. 14.
  49. The Ends Report 2011 Environment Agency backs ‘biobanking’ trading scheme. The Ends Report, 3 May 2011; The Environment Bank 2011 Environment agency partners with The Environment Bank to create Eco Markets for coastal flood management and habitat banking. Press release, 7 April 2011 (formerly at
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  51. Formerly at
  52. Formerly at
  53. Formerly at, see also and related pages.
  54. Although, of course, for many it is still a stretch too far to create equivalence between industrial emissions and the carbon stored in long-evolved and diverse assemblages of species in forests, such that this carbon can be accounted for in market mechanisms including the Clean Development Mechanism (CDM and REDD+) – as discussed in the essays here and here.
  55. Climate Bonds Initiative 2010 Climate Bonds can fund the rapid transition to a low-carboneconomy.
  56. Climate Bonds Initiative op. cit.; Kerste, M., Weda, J. and Rosenboom, N. 2010 Innovations in Financing Environmental and Social Sustainability: Literature Overview. Amsterdam: Duisenberg School of Finance and Holland Financial Centre.
  57. The first bond linked in part with future market prices in Certified Emissions Reductions (CERs) ‘and the actual versus estimated delivery of CERs that will be generated by a hydropower plant located in the Guizhou Province in China’ – The World Bank 2008 Daiwa Securities Group offers the first CER-Linked Uridashi Bond Created in Collaboration with the World Bank, formerly at formerly at
  58. Designed with Netherlands banking conglomerate ABN AMRO, ‘Eco Bonds’ were issued in 2007 and are coupons that are ‘linked to an equity index, the ABN AMRO Eco Price Return Index, comprised of companies that produce alternative forms of energy, engage in water and waste management, or are involved in the production of catalysts used to reduce pollution’, see World Bank Group 2008 World Bank issues Eco 3Plus note through Fortis Retail Bank, formerly at
  59. Designed with Skandinaviska Enskilda Banken, ‘the top bank for large corporate clients and financial institutions for the entire Nordic region’ (, as accessed 7 March 2013. Green Bonds have been issued by the World Bank Treasury since 2008 to encourage ‘fixed income investors to support World Bank lending for eligible projects that seek to mitigate climate change [including through avoided deforestation] or help affected people adapt to it’ (World Bank Treasury 2012 Green Bond Fact Sheet. Formerly at, p. 1.
  60. As described by fund manager Matthew Kiernan, former Director of the World Business Council for Sustainable Development, in Investing in a Sustainable World: Why Green Is the New Colour of Money on Wall Street (2009, New York: Amacom). Kiernan is founder of Inflection Point Capital Management (IPCM), which compiles and manages a proprietorial database to provide information on companies’ sustainability performance to investors.
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  63. Ibid., pp. 7, 12.
  64. Ibid., p. 6.
  65. Ibid., pp. 6, 15.
  66. Ibid., p. 14.
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  69. Ibid., p. 24. Not to be confused with Treasury Investors Growth Receipts (TIGR), also known as ‘Tiger Bonds’, which are ‘a type of zero-coupon bond originally issued by the US Treasury’ and ‘do not pay interest over time, but instead are sold at a severe discount and, once mature, pay out at the full market price they had when issued’
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  72. Ibid., p. 177.
  73. Also see investment broker Graham Summers on Why derivatives caused financial crisis, 2010
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  75. Mandel, J., Donlan, C.J. and Armstrong, J. 2010 A derivative approach to endangered species conservation. Frontiers in Ecology and the Environment 8(1): 44-49. See critique in Raffensberger, J.F. and George, J.A. 2009 A Touching Belief in the Market: Comment on ‘A Derivative Approach to Endangered Species Conservation’. Formerly at,%20A%20Touching%20Belief%20in%20the%20Market.pdf.
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  77. Ibid., pp. 45-46.
  78. Strange, S. 1998 What theory? The theory in Mad Money. CSGR Working Paper 18/98, p. 17; Mandelbrot, op. cit.
  79. See the various emissions and carbon trading possibilities on the Intercontinental Exchange (ICE) (formerly at
  80. Cooper, op. cit., p. 177.
  81. For an example of how demand for biodiversity offsets is arising to seemingly mitigate the very significant environmental effects of uranium extraction and power production, see Sullivan, S. 2013 After the green rush? Biodiversity offsets, uranium power, and the ‘calculus of casualties’ in greening growth. Human Geography 6(1): 80-101.
  82. Gartner et al., op. cit.
  83. As documented by Olivier De Schutter, the UN Special Rapporteur for Food, in De Schutter, O. 2011 The green rush: the global race for farmland and the rights of land users. Harvard International Law Journal, 52(2): 503-559.
  84. As highlighted in a recent special issue of the Journal of Peasant Studies entitled ‘Green grabbing: a new appropriation of nature?’, edited by Fairhead, J., Leach, M. and Scoones, I. (2012).
  85. For recent examples see, for example: Beymer-Farris, B.A. and Bassett, T.J. 2011 The REDD menace: resurgent protectionism in Tanzania’s mangrove forests. Global Environmental Change 22(2): 332-341; Seagle, C. 2012 Inverting the impacts: mining, conservation and sustainability claims near the Rio Tinto/QMM ilmenite mine in Southeast Madagascar. Journal of Peasant Studies, 39(2): 447-477; Benjaminsen, T.A. and Bryceson, I. 2012 Conservation, green/blue grabbing and accumulation by dispossession in Tanzania. Journal of Peasant Studies, 39(2): 335-355.
  86. Mikkelson, G., Gonzalez, A. and Peterson, G.D. 2007 Economic inequality predicts biodiversity loss. PLoS ONE, 2(5): e444.
  87. Ibid.
  88. Ibid.
  89. Cranford, Henderson, Mitchell, Kidney and Kanak, op. cit., p. 12.
  90. Discussed further in Walker, S., Brower, A.L., Theo Stephens, R.T. and Lee, W.G. 2009 Why bartering biodiversity fails. Conservation Letters, 2: 149-157, p. 150.
  91. E.g., Cranford, Henderson, Mitchell, Kidney and Kanak, op. cit., p. 24.

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