Tools for achieving the UN decade on ecosystem restoration

29 December 2021

Research

The UN Decade of Ecosystem Restoration, launched on World Environment Day this year, has one goal: to prevent, halt and reverse ecosystem degradation worldwide. For the 3.2 billion people affected by degraded land, nature is not simply an instrument for growth, it is fundamental to their livelihood.

Environmental impacts have risen alongside our dependence on nature. While governments, businesses and financial institutions have made progress towards accounting for carbon emissions, most economic decisions still do not account for our impacts and dependencies on natural capital – from the soils we use for growing crops and forests sequestering carbon to land generating diverse and key ecosystem services for our well-being.

The transition to a nature-positive economy – one that mitigates climate change and halts nature loss – asks that we account for the dependencies on and risks to the natural assets that underpin our economic growth and the health of communities. Doing so is in our best interest: Identifying and disclosing environmental risks builds efficient business and policy decision-making. It is a pillar of green growth.

Public and private investment decisions must favour resilient and sustainable options or miss opportunities and face additional costs. Integrated environmental assessments of investment proposals are the necessary response. These are tools for considering climate trends and social and environmental outcomes of projects to avoid the wide variety of nature-related risks – from physical damage to supply chain performance and business value risk.

However, impact assessments and methodologies to value nature in financial and policy decision-making are not at the scale needed to address the issues at hand. In a review of 340 studies on the use of natural capital in policymaking, the Green Growth Knowledge Partnership (GGKP) found that only two papers reported on the policy impact of natural capital information. In addition, very little literature is found on the application of natural capital indicators to decision-making.

Below we delve into examples of practical natural capital assessments and evaluation for decision-makers to better value natural capital in development planning. As you will see, these assessments bring to light the rewards of valuing nature and advancing policies to reverse ecosystem degradation.

Practical inclusion of natural capital in Tanzania

As part of a project to advance natural capital approaches in infrastructure finance and green growth, an assessment of the Kakono hydropower plant in northwestern Tanzania was conducted in 2021. It used the Sustainable Asset Valuation (SAVi) methodology to quantify and value environmental, social and economic externalities of the infrastructure project, as well as the impacts of environmental degradation, such as climate change, on financial performance.

Under the scrutiny of the assessment’s cost-benefit analysis and the levelized cost of energy analysis, among other performance indicators measured, the Kakono hydropower plant proved to be a climate-resilient energy asset and an appealing investment opportunity.

The assessment goes a step further to recommend steps to ensure it is a net-zero carbon project by cutting unavoidable life cycle greenhouse gas (GHG) emissions and propose (re)forestation to improve terrestrial habitat quality lost due to land clearing and the reservoir. Improvements to soil stability and avoiding soil erosion are recommendations developed as part of the first foundational step to asset valuation and environmentally conscious investment decisions.

For multilateral development banks, such as the African Development Bank (AfDB), the SAVi assessment integrates considerations of financial and performance risk with the burden to local ecosystems. Understanding the carrying capacity of our natural systems avoids making dangerous investment decisions that could lead to irreversible natural capital depletion. And it avoids making a decision that could lead to poor financial returns because of that depletion. Managing and avoiding nature-related risks benefits the world’s ecological foundations and one’s bottom line.

Putting the measures in place for financial institutions to play a part in addressing the nature emergency asks that internal protocols mandating feasibility assessments consider the dependencies on and risks to natural capital.

Once a strong internal governance structure is in place to take full account of natural capital, the SAVi assessment recommends several ways to make smarter, nature-positive business and investment decisions:

Develop a comprehensive framework of analysis that considers both external risks faced by infrastructure and the external cost and (co-)benefits implied by the infrastructure project
Conduct a multi-disciplinary, integrated assessment of the investment
Compare the proposed investment with alternative options to better assess its socio-economic, environmental and financial performance

Additional natural capital aspects, such as the impacts of upstream and downstream ecosystem services on the long-term valuation of the infrastructure project, were beyond the scope of this assessment. This suggests that future assessments would be needed to take such broader impacts and dependencies into account.

Land restoration in Rwanda

In sub-Saharan Africa, the reliance on the land for food and economic sustenance is striking. With about 70 percent of the region’s population living in rural areas, over 80 percent of people depend directly on the land for survival. Yet, degradation affects up to two-thirds of productive land.

In Rwanda, land degradation continues to be a major concern, with soil losses ranging from 35 to 246 tons ha/yr. Land fragmentation and rural population growth have put growing pressure on its ability to reverse natural resource degradation in a country where 70 percent of the population is working in agricultural production.

There are well-developed models to help us understand what policy interventions are best to combat these impacts. A joint study by the Economics of Land Degradation Initiative, GGKP and Montclair State University outlines the diverse linkages between Rwanda’s land degradation due to erosion and economic indicators, such as GDP, poverty reduction and unemployment, among others. (Read the policy brief).

Table: Real macroeconomic indicators in 2035 with respect to the baseline scenario (BASE)

The study found that gradually expanding irrigated agriculture, land consolidation to increase productivity and using fertilizer under an asset management approach would have multiple benefits. Restoring the country’s natural capital would enhance economic well-being, counter environmental degradation and increase ecosystem services. Boosting agricultural productivity would significantly reduce the pressure on cropland to meet demand for crops. The co-benefits in social and human capital, combined, would also help Rwanda achieve its targets under the Sustainable Development Goals (SDGs).

The study uses multiple models to outline how the Rwandan government can make advances in land restoration while addressing poverty. In so doing, it could achieve full-cost recovery through a mix of public and private investment.

Demonstrating the value of terrestrial ecosystem services in a natural capital context informs real-world decision-making. It makes the business case for enhancing and protecting natural capital needed to prevent land degradation in countries that highly depend on land for their collective welfare.

An applied system of economic accounting that is inclusive

As Sir Partha Dasgupta of the Dasgupta Review put it: “How we currently measure this stock and flow of our produced goods and services – gross domestic product, or GDP – uses a faulty application of economics. […] a path to prosperous, sustainable economic development adopts a system of economic accounting that records an inclusive measure of wealth.”

Natural capital and ecosystem services play a crucial role in maintaining biodiversity and enabling green growth. If we are to meet the SDGs and make substantive headway on the decade of ecosystem restoration, the methods for analysis and assessment need to become a standard practice in a system-wide effort to value nature for all that it supplies.

The tools are available for doing so. Now it’s a matter of applying them.

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Tools for addressing natural capital knowledge gaps:

Policy

Data