Markets, biodiversity, and the Holocene extinction
Nature offers every day numerous goods and services to earthlings free of charge that sustains human life and supports economic growth. These goods and services range from breathable air passing by pollination, all the way to carbon absorption and the production of half of the oxygen we breathe by plankton while sustaining and supporting marine and freshwater food webs.
Romain, Svartzman, et al. in A “Silent Spring” for the Financial System? Exploring Biodiversity-Related Financial Risks in France. №826. 2021, have outlined in their research that 42% of the value of securities held by French financial institutions comes from issuers that are highly or very highly dependent on one or more ecosystem services. They have also found that the accumulated terrestrial biodiversity footprint of these securities is comparable to the loss of at least 130,000 km² of “pristine” nature, which corresponds to the complete artificialization of 24% of the area of metropolitan France.
The invisibility of these biological and biochemical processes exacerbates the valuation of such services. Combined with how little we do know about the species — from bacteria, viruses, plants, mammals, insects, to amphibians — that inhabit our planet. it has been estimated that there are around 8.7 million species of plants and animals in existence with only 1.2 million species having been identified and cataloged so far.
The current rate of extinction of species is estimated at 100 to 1,000 times higher than natural background extinction rates, Wilson (1992) and many others have argued that it is largely driven by humans.
Ecosystems’ health and balance are a function of their biodiversity, the fewer species an ecosystem possesses, the worst its equilibrium and health will be.
Faced with these facts, it is appropriate to wonder how did we get here, where are we, and where we are heading? These questions call upon a plethora of diverse fields and disciplines for answers. Economics and finance as disciplines must contribute to this discussion that has been brewing, capturing the true costs related to the loss of biodiversity and ecosystems, to better enrich policy goals in scope and depth.
Markets — one of the widely used mechanisms humans invented to value attribution to scarce resources through prices — operate and thrive within the bounds of biophysical laws and cannot operate outside of them. Market imperfections and asymmetries are behind the inability of markets to capture the value of ecosystems and biodiversity loss. One could imagine a deeper philosophical questioning of the relevance of markets to questions of biodiversity and nature.
2022 will be a defining year that will be remembered for inflation, the resurgence of new covid varients, and the comeback of some sort of normalcy after years of on and off lockdowns, and probably most important of all war and the threat of nuclear war.
As we remain focused on the immediate short-term threats and we are likely to ignore more important urgencies that are perceived as pertaining to the long term due to our subjective perceptions of time. Combined with our flagrant ignorance of nature, if we remain on the business as usual path, we are set for disaster, not in 100 years from now, but probably in the next 5 to 10 years.
Attempting to not hinder GDP growth while saving the Environnement might have been a reasonable approach 60 years ago, right now, the answer is contingent on whether or not we are ready to accept becoming less rich (at least for the developed countries).
The Genuine progress indicator (GPI) is a metric designed to take fuller account of the well-being of a nation, only a part of which pertains to the size of the nation’s economy, by incorporating environmental and social factors which are not measured by GDP. For instance, some models of GPI decrease in value when the poverty rate increases. The GPI separates the concept of societal progress from economic growth.
The famous graph clearly shows in the case of the United States, wealth increasing over the period from 1950 to 2000 as opposed to the well-being increasing at a lower rate but more or less stagnating despite the increases in wealth. We could arguably conjecture that the pursuit of well-being is ethically speaking more important for the human species even from a purely utilitarian perspective of reducing pain and maximising the collective pleasure of society.
It is conceivable, or even certain that we have shaped the planet beyond the point of no return, for example, we have cultivated bananas trees to yield sugary, devoid of seeds, and immense in size fruits. In doing so, we have almost killed all of the diversity of banana trees that existed before to the extent that today there’s only one dominant species today. We have done the same for other crops as well, except that the issue with this approach of cultivating crops is that it renders the entire food system of the planet vulnerable to pathogens given the lack of diversity.
The issues I have mentioned above are of a global scale that necessitates a very intense and highly evolved eusocial behavior that sees the species as one singularity, with allegiance being pledged not to countries, but to the planet. It is a maturity level of our species that we have not attained yet given our biases, chauvinisms, and reptile instincts. Will we ever be able to do so? It remains to be seen.