Finance solutions require a sound justification using economic and social arguments. Decision makers understand the language of economics and finance better than the one of ecosystems and biodiversity. A justification and business case that includes a combination of moral, financial and economic information is important to motivate leaders and citizens to act. Economic theory can help explain how nature, human decisions, trade, and investment interact. Furthermore, it can help explain some of the reasons behind these decisionmaking outcomes. Integration of economic theory into biodiversity planning and management is essential to achieve transformative change because:
Many of the solutions to solve market and public policy failures require determining the economic value of nature’s goods and services. Economic valuation is a way to understand how much something is worth to people or society.46 Economic valuation can be used to:
Economic valuation studies that highlight nature’s contribution to human well-being are available in the hundreds and are constantly improving in accuracy and rigour.47 Quantifying the value of biodiversity remains one of the most challenging areas of environmental economics.48 However, most economic valuation studies are still concerned with raising awareness. They are not conducted within the context of costs and returns on investment. As a result, this information does not provide good enough arguments for prioritizing biodiversity investments. Simply stating that a national park has a high total economic value will not necessarily result in increased funding. It is essential to translate societal and economical values into actionable financial or fiscal terms. The BIOFIN Process aims to do this.
Other methods such as cost-benefit analysis (CBA) can shed further light on public policy and investment debates by comparing the costs and benefits of a proposed policy or project in quantitative terms. CBA application thus allows for the comparison of the expected outcomes of alternative formulations of laws and policies or investment options for infrastructure development and business decisions. Since market prices are not available for many environmental goods and services, it is difficult to include them in a CBA. Many “development” projects result in economic losses when full cost accounting is included in CBA,49 yet it is often incumbent on civil society to ensure that the environment considerations are captured adequately in analysis.
Despite methodological challenges and data gaps, economic valuation of biodiversity and ecosystem services and CBA have become powerful tools for demonstrating biodiversity’s contribution to growth, employment creation and poverty reduction in language familiar to decision makers. They help policymakers understand why ecosystems remain undervalued, identify dependencies on biodiversity, and explain the loss of economic productivity and worsening of poverty associated with ecosystem degradation. Economic arguments help to make the case for investment in biodiversity through National Biodiversity Strategies and Action Plans (NBSAPs) and other relevant sectoral strategies and national development plans. This evidence is examined further in the PIR (Chapter 3) and is a necessary part of making the case for the Biodiversity Finance Plan (Chapter 6).