Valuing nature’s water infrastructure

June 05, 2015


June 05, 2015

Mark Smith

Global Treasurer, Senior Vice-president Finance, Tax, Treasury, Pensions, Insurance

With 10 years experience living and working in D&E, and more than 6 years looking after Asia and Africa, Mark is well placed to take part in the debate on how CFOs can do business in emerging markets.

Our economic growth agendas of today risk playing dice with poverty reduction and prosperity if water risks continue to go unrecognised, argues Mark Smith, director of the IUCN Global Water Programme.

Can you manage what you don’t measure?  Produce such as coffee, cotton, and oil are traded commodities that are measured, managed, negotiated and priced based on market supply and demand.  Yet, what happens when measuring things of great value that are more nuanced, more complex, not commodities, not privately owned and not traded in markets,  such as rainfall, rivers, wetlands, or biodiversity?

The Economics of Ecosystems and Biodiversity (TEEB) is a global initiative set up in 2007 that focuses on making nature’s values visible. As Professor Edward Barbier (a member of TEEBs Advisory Board) puts it, “we use nature because it is valuable, we lose nature because it is free”.

Adam Smith’s diamond-water paradox, differentiating value and price, states that water is considerably more valuable than diamonds, yet diamonds command a much higher price. This resonates with more people than ever before.  Daily news on floods and droughts, and the loss of services we receive from ecosystems is concerning.  Securing Water, Sustaining Growth, a report from the Global Water Partnership/OECD Task Force on Water Security and Sustainable Growth, highlights that floods, droughts and a lack of investment in providing high-quality, reliable water supplies is dragging down the global economy.

Pollution, over-abstraction, dams altering river flows, deforestation causing soil erosion and desertification, and climate change can all have devastating impacts on our water resources. The most recent estimates of wetland loss show that as much as 64% has been lost since 1900. In 2013, over 80% of Asia’s rivers were rated by the Asian Development Bank as having poor health because of pollution and the damming of rivers. In the US alone some 750,000 kilometres of rivers, or 19 times the earth’s circumference, are classified as degraded.

Biodiversity—the living fabric of the planet’s surface and its ecosystems, species and genes—is suffering catastrophic losses. Of more than 25,000 freshwater species assessed for the IUCN Red List, one-third are threatened with extinction, and according to WWF’s Living Planet Index, freshwater species populations have declined by 76% since 1970.  This is double the rate of decline compared to any other biome.  If we are not careful, our rivers may end up as empty, lifeless channels.

Natural infrastructure services

Water-related ecosystem services perform an infrastructure-like function, such as wetlands filtering contaminated water, mangroves protecting shorelines from extreme weather events, floodplains absorbing excessive storm waters and lakes storing large water supplies.

Yet, they are not built infrastructure; these natural water infrastructures are shaped, grown, eroded, or deposited by nature. Working with nature can optimise the performance and financial benefits of engineered infrastructures.  An academic study valued the societal benefits of natural water infrastructure services (wetlands, lakes and rivers) at $29trn per year as of 2011.

Natural infrastructure provides services that underpin the way we manage our river basins and therefore the way we grow food, generate electricity, and supply water to cities.  At the same time, it maintains important biophysical processes, and endows our environment with species and habitats.  Critically, water drives our climate, and therefore climate change affects the hydrology we so heavily rely upon.  The majority of finance directed towards adaptation to climate change is used to solve water management challenges on the ground, and yet water is poorly integrated into climate change policy discussions and funding proposals.

Our lack of awareness of these problems has been going on for so long and is so extensive that we have become inured to it, almost blind to its severity and its costs. Shareholders would never allow the capital base of a business to be eroded to such an extent. They would demand change. Yet, despite all of us being shareholders in the natural capital of the world’s ecosystems, we seem unable to create the critical political momentum needed to take action on the scale needed.

Beyond business as usual

Wake-up calls abound. The World Economic Forum (WEF) recently ranked water crisis as its top global risk in terms of impact; a recent report by the non-profit sustainability organisation Ceres concluded that the food industry is unprepared for global water scarcity.  Our economic growth agendas of today risk playing dice with poverty reduction and prosperity if water risks continue to go unrecognised.

This week, the Ramsar Convention on Wetlands is holding its triennial conference in Uruguay. The Ramsar Convention is the only intergovernmental treaty that provides the framework for national action and international cooperation for the conservation and wise use of wetlands and their resources. With the right ambition and motivation, the governments gathered at this conference and their NGO partners can be catalysts for change that is big enough to stop and reverse a terrible history of ecosystem loss and destruction. This is a goal that demands we look beyond business as usual.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.

Enjoy in-depth insights and expert analysis - subscribe to our Perspectives newsletter, delivered every week