The Dasgupta Review needed to engage today's finance ministers: here’s how

Paul Steele sets out ways to spur urgent and immediate investment in biodiversity conservation – complementing recommendations from Dasgupta’s landmark review.

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11 February 2021

Paul Steele is chief economist at IIED

Aerial view of forest

Economics and nature conservation are closely linked. Evidence shows that the costs of biodiversity action are lower than the cost of inaction (Photo: Mokhamad Edliadi/CIFOR via Flickr, CC BY-NC-ND 2.0

The Dasgupta Review – a mammoth 600-page treatise on the economics of biodiversity – places its faith in influencing future finance ministers.

But without tangible figures on the costs of inaction on biodiversity loss and fiscal and monetary policy recommendations, the review misses engaging current finance ministers and economic decision-makers, whose support is urgently needed to reverse the nature crisis.  

This was illustrated by the glaring absence of UK Chancellor Rishi Sunak at last Tuesday’s launch, despite the UK Treasury commissioning the review a year ago and housing its well-staffed team. The government was instead represented by a short video message by the prime minister and environment minister.  

Rigorous and credible…

The review’s author, Professor Sir Partha Dasgupta, has produced an exceptionally rigorous exposition of the economics of natural capital and its importance to economic wealth, and sets out a sophisticated theory of how institutions impact natural capital.   

The report is full of the kind of complex mathematical equations that modern economists require for credibility and legitimacy. Indeed, modern economists are often dismissively referred to as “failed mathematicians”.       

When asked at the launch to pinpoint the number one change the review should bring about, Dasgupta asserted “a change in the way economics teaches about nature”.  Such a change could indeed be transformative as a solution to biodiversity loss, given how powerful the field of economics is.

The review is wedded to education as a solution to the loss of biodiversity with its plea that nature studies is core to the school curriculum. This is not surprising as Dasgupta is very much an academic economist with a long and distinguished career at Cambridge University and the review seems to be targeted primarily at his academic peers.

…but key finance figures missed

The focus on education and the economics profession may shape the thinking of future finance ministers. But to reverse the nature crisis we need action now – we cannot wait for generational change.

Dasgupta and the UK government could have done more to produce a review that would engage with current economic decision-makers through a strong headline message linked to GDP data, and practical and specific policy-driven measures for how to reverse biodiversity loss. Indeed, ‘finance ministries’ are only referred to three times and ‘fiscal policy’ and ‘monetary policy’ are absent from the 600-page report. 

This is where the review could have learnt from the influential 2006 Stern Review on the Economics of Climate Change. Nicholas Stern is a well-recognised academic and deeply experienced in real world policy after years as World Bank chief economist and head of the UK Government Economic Service. 

His review presented a set of accessible and operational messages on why finance ministers should take climate change seriously. It provided a compelling argument for action, including putting the costs of climate damage at 5% of GDP a year compared to the cost of mitigation at 1%, plus a simple set of policy recommendations for reducing emissions.

The then chancellor Gordon Brown followed the Stern Review closely and played a key role in its implementation.

So what operational messages did the Dasgupta Review overlook?

We need a clear headline message in a vein similar to the Stern Review that shows the GDP costs of biodiversity action being lower than the cost of inaction – building on past reports such as from the European Union in 2008 that estimated the cost of biodiversity loss at 7% of global GDP by 2050, a 2012 study in the Science journal, an Organisation for Economic Co-operation and Development (OECD) report (PDF) from 2019, and from WWF in 2020 that put the costs of inaction at $10 trillion globally over the next 30 years.

These figures need to be highlighted and promoted to spur on investment in biodiversity conservation by finance ministries.

Finance ministries and to some extent central banks, in both OECD countries and the global South, also need specific operational recommendations that they can implement immediately.   

These might include:

  • Budget preparation, approval, implementation and oversight (for example, ways for finance ministries to engage with environment ministries and civil society working on biodiversity, undertaking a biodiversity expenditure review and tagging biodiversity related expenditures, both positive and negative)
  • Fiscal policy (for example, removal of subsidies for the meat industry and intensive agricultural inputs more generally, and imposition of biodiversity enhancing taxation)
  • Trade policy (for example, removal of export credits for the palm oil industry, proper compliance, and enforcement of foreign investment concessions that impact on biodiversity such as paper, forestry and mining), and
  • Monetary policy (for central banks) focusing on debt (such as post-COVID-19 debt relief for climate and nature programme swaps); inflation (ensuring that inflation does not drive natural capital extraction); and financial regulation i.e. banking and insurance supervision (for example, controls on lending that drive natural capital extraction and supporting the global Task Force on Nature-related Financial Disclosure.

These very practical steps for finance ministries and central banks would complement the Dasgupta Review’s theories on valuing natural capital. It is vital that in the run up to the UN biodiversity convention in China later this year, finance ministries are fully engaged in efforts to stop biodiversity loss.

About the author

Paul Steele (paul.steele@iied.org) is chief economist at IIED

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