EU is pushing biodiversity offsetting through the backdoor

By Xavier Sol, originally published on Counter Balance

Last year the European Commission was forced to ditch its plans to develop legislation on biodiversity offsetting after EU citizens overwhelmingly rejected such plans in a public consultation. Nevertheless this set back doesn’t seem to withhold the European Commission from pushing biodiversity offsetting forward in practice. Together with the European Investment Bank (EIB) it is running the Natural Capital Financing Facility (NCFF), which aims to invest up to €125 million in natural capital projects.

The push for biodiversity offsetting is not only at odds with the EU’s democratic policy process, the benefits for the environment remain questionable. Because of its focus on financial return critics fear the NCFF may rather drive the financialisation of nature than the protection of nature.

The NCFF will operate a total budget of €100-125 million with an additional €10 million for technical assistance. The aim is to leverage private investments for 10-12 pilot schemes from 2015 to 2017.

According to the European Commission the NCFF has to „demonstrate that natural capital projects can generate revenues or save costs, whilst delivering on biodiversity and climate adaptation objectives. The NCFF is to establish a pipeline of replicable, bankable operations that will serve as a “proof of concept” and that will demonstrate to potential investors the attractiveness of such operations“.

The European Commission’s conviction that financial gain and biodiversity gain can be easily combined is not shared by everyone. During the consultation round on biodiversity offsetting last year, over 9000 people and 65 organisations have signed a letter urging the Commission not to pursue policy related to biodiversity offsetting. They fear it would “harm nature and people, and give power to those who destroy nature for private profit.”

Indeed, the NCFF’s budget consists of €50 million from the Commission’s Life programme, money that used to come in grants for environmental projects. Increasingly, proponents of financial instruments argue that flexible financing is necessary in order to secure ample funding to address the climate and environmental crises. However, it also means a shift in management from environmentally focused institutions to institutions with a financial focus driven by profit. As a result success becomes measured by profitability rather than the ability to protect nature.

Another problem is the lack of transparency. Part of the NCFF funding will be channelled through intermediary funds managed by third parties. Using financial intermediaries makes it impossible to fully measure the project’s impact. The EIB’s responsibility to track all the investments is outsourced to the intermediary who often lacks the capacity, know-how and focus to lead on this process. This has an inevitable impact on the quality of the projects.

Among some environmental organisations doubts about the NCFF as an instrument are rising even before the first projects have been approved. Its focus on promoting the valuation of nature and developing markets for ecosystem services and biodiversity offsetting makes it a symbol of the financialisation of nature.

Putting a price on nature would be disastrous

Plans to apply market values to forests and waterways to protect them could lead to the destruction of everything nature gives us
By Nick Dearden, originally appeared on the Guardian on 27/11/2013
A spoof ‘Great Nature Sale’ protest at the Edinburgh meeting of the World Forum on Natural Capital. Photograph: Colin Hattersley

As UN climate negotiations rumbled on in Warsaw, big business came together with conservation groups in Edinburgh last week at the inaugural World Forum on Natural Capital to put a price on nature.

The idea goes back to the Rio+20 conference in 2012, when a group of investorsdrafted the natural capital declaration. It argues that if we price everything nature gives us (wildlife, plants, forests, waterways, pollination, you name it), companies would think twice before destroying them.

Like advocates of the market for more than 200 years, the drafter of the declaration cannot abide the idea of “the commons” – commonly held resources whose reproduction and use is not subject to the laws of finance. The English enclosures, starting around the 15th century, and the Scottish clearances, from the 18th century, turned most common land in our country into private property, generating the profits that fed the Industrial Revolution.

In its quest for new markets today, finance is again intent on privatising the “global commons”. The first step, as is clearly expressed in the natural capital declaration, is to start thinking of the environment as if it were capital, and to price it accordingly.

Surely few of the conservation groups gathered in Edinburgh last week would welcome the wholesale selling-off of nature. But either through desperation at the scale of the environmental crisis, or in ignorance of the political implications of the project, many are going along with this first step of putting a price on nature.

As one delegate told me: “We’re just trying to value nature better.” Ironically, it took an investment professional to point out the dangers that seemed to have escaped so many NGOs. “Be very careful,” he warned. “Once you put a price on nature in order to protect something, you will find someone will pay that price in order to destroy it.”

Even for market specialists, pricing nature is no easy task, as a representative of a French investment bank told the Edinburgh forum when explaining the problems of trying to compare different species. Butterflies seemed to cause him particular difficulty, as it’s tough to track how many of them are flying around.

But the benefits of doing so became clearer when a former head of Puma told us: “Yes I fly a lot, but by the end of my life I hope I will have had a ‘positive net impact’ on the planet.” The logic runs, it doesn’t matter how much damage you do, as long as you make up for it by investing in some good deeds elsewhere.

For a frequent flyer, you can buy an offset that funds forest plantation. A market in nature would allow a mining company to keep destroying the environment in Bolivia as long as it supports a green and pleasant land somewhere in South Africa.

Leaving aside the difficulty of creating species to replace the ones you’ve wiped out, this also means imposing property rights on land being used by the people in that paradise, who you might have to turf off their land. But that is also beneficial to investors, because you’ve just expanded the potential commodity markets. What’s more, you have bought an indulgence and your sin is wiped out – so you no longer need to focus on reducing your environmental destruction.

To grasp the absurdity of the argument, consider setting up a financial market in human rights crimes. Presumably, if I want to torture or murder one group of people in one place, I could do this as long as I invest in protecting – or simply not harming – a group of people somewhere else. Maybe I could buy a credit from Amnesty International.

This is great news for the likes of Rio Tinto, whose representatives treated us to a presentation about a beautiful project it is working on in Australia. We didn’t see, and no one thought to ask, about the destructive mining it was also engaged in, which this project supposedly makes acceptable. It’s not relevant. What’s important is Rio Tinto’s “positive net impact” on the world.

This is about much more than greenwash. Because the “good” activities have a mirror in the “bad” activities in the market, the more good stuff you do, the more bad stuff you can also do. More butterflies in Italy means you can mine more in Bolivia. Meanwhile, financiers will make a killing betting on whether a butterfly species will die out, allowing you to hedge your risks.

Many people asked me: “So what’s your alternative then?” I recommend removing finance from the world, rather than promoting it. Five years after financial markets and their “innovative” products sent the global economy into a tailspin, few people outside the political establishment would put them in charge of our environment.

A packed counter-forum in Edinburgh, organised by the World Development Movement and other campaign groups, attracted several participants from the official event. This forum heard that people on every continent are reclaiming the commons from finance – re-municipalising water, supporting the food sovereignty movement, setting up local, renewable energy schemes. Anyone claiming to want a better world should be betting on them, rather than on the market.

Fighting the Great Nature Sale

On 21st November governments, international institutions, corporate actors and mainstream civil society groups will meet in Edinburgh for the first ‘World Forum on Natural Capital’.

Following the launch of the Natural Capital Declaration, promoted by major global banks at the occasion of the World Summit on Sustainable Development in Rio in June 2012, business and governments are working to assign monetary value to services provided by nature’s different services, under the banner of the so-called “Green Economy”.

In an era dominated by global finance where trading money, risk and derivative products is more profitable than trading actual goods and services such a move comes as no surprise. Global finance requires the constant development of new assets: their next target, nature itself. This is what we call the financialisation of nature.

The first large scale implementation of this idea is the carbon market where carbon emissions are traded and as if it were financial commodities. Despite their profitability carbon markets have failed to addressing the climate crisis, succeeding only in generating huge profits to financial and corporate actors.

In order to enable the trading of nature and natural services an enormous amount of work is being done by consultancies, banks and governments to define what nature’s services are and how they can be commodified. That’s why the ‘World Forum on Natural Capital’ aims at giving a monetary value to all ecosystem services. The next step for banks and governments is to facilitate the trade in these services, as has already been done with carbon. This market is expected to be worth many trillions of dollars per year.

We believe nature’s value is priceless and has to be protected. That’s why we reject this new wave of commodification and financialisation of nature promoted by governments, corporations and banks. Putting a price on nature will not save it from pollution and destruction. To the contrary, these new commodities will only guarantee extra profits to the few, while leaving the environment at risk in the long-run.

Ecosystems and their services are common resources and must not be enclosed for private gain. Compliance with existing environmental regulation would be replaced with financial compensation. Instead of saying that a polluter does not have the right to pollute our common resources, markets sell that right. Once a price is put on nature, all of our common resources can be bought, sold and packaged. Worse, as we have seen in the recent financial crisis, a market can be manipulated, repackaged and resold as financial derivatives, bonds and other products.

Ultimately, accounting natural capital will result in increased exploitation of natural resources instead of protecting them. Join us in Edinburgh to stand up to global finance and share ideas to protect the commons for the benefit of all.

Berber Verpoest, Counter Balance
Antonio Tricarico, Re:Common