Nature’s ecosystems are the foundation of life, yet modern economics treats them as an afterthought.
This market failure arises, in part, because when nature is assigned a financial value, it’s often considered in fragments, rather than as a whole. Timber has a market price, for example. So does coal, wheat, cattle and copper. Beavers once had a market value so high they were hunted to near-extinction.
What typically lacks a market value, however, is protecting a forest to reduce the risk of floods in downstream towns, or to filter drinking water for a city, or to stabilise local weather patterns in an agricultural hub. These benefits are considered intangible and, therefore, rarely factor into economic decision-making.
As a result, when governments and businesses base decisions solely on costs and profits, ecosystems are depleted and destroyed. Forests are logged, rivers are rerouted, air is polluted and soil is eroded — not because they lack value, but because their value isn’t reflected in financial systems.
One proposed solution is to price nature’s ecosystems more accurately. This is no simple task, but the idea is that by assigning real financial worth to these vital services, decision-makers will have to account for them — shifting conservation from an afterthought to a necessity. Over time, protecting and restoring nature could become the more cost-effective path, while also directing much-needed funding toward Indigenous peoples and local communities who have long safeguarded biodiversity.
At Wedgetail, we see enormous potential in this approach. In previous editions of Nature-Positive Notes, we’ve explored why we should put a price on nature and why people need to be at the heart of nature markets. In this edition, we progress the conversation from theoretical to practical by featuring four case studies that offer glimpses into how nature’s value can be better integrated into economies.
From Belize and Colombia to Costa Rica and New York, these examples hint at the transformative potential of financing environmental stewardship for the benefit of all species.
Costa Rica’s payments for ecosystem services
In 1950, forests covered more than 50% of Costa Rica’s landmass.
Over the three decades that followed, farmers were enticed by cheap credit and incentives to clear land for cattle grazing and banana and pineapple plantations, leading to a steady rise in deforestation.
In the late-1970s, the country rolled back its perverse policy incentives. But policy changes weren’t sufficient to halt deforestation. By 1995, forest cover had declined to 25% — with approximately 60% of this remaining forest cover, totalling 1.2 million hectares, on privately owned lands outside of national parks and biological reserves.
In 1997, then-president José María Figueres Olsen and his government recognised that this deforestation was principally driven by economic interests, and introduced a ‘payments for ecosystem services’ (PES) program to pay landowners to conserve forests, restore forests and sustainably grow and manage forest plantations.
The PES program is largely funded by a sales tax on fossil fuels, with some additional funding from an upstream water tax, private sector firms that benefit from environmental services (largely renewable energy producers and water-bottlers) and the sale of credits for offsets.
Between 1997 and 2022, the PES program signed 6,000 contracts, deploying US$565 million to protect 1.15 million hectares. Highly biodiverse tropical rainforests now cover close to 60% of Costa Rica’s landmass, making it the first tropical country in the world to have reversed deforestation while increasing economic growth.
But PES payments aren't the only revenue stream available to landowners.
As nature has flourished, so has ecotourism. In 1996, 940,000 tourists visited Costa Rica. By 2019, this number had nearly quadrupled, with 3,660,000 tourists flocking to the country to see cloud forests, thick rainforests and dry forests galore.
Costa Rica’s PES program was innovative when it launched and remains a world-leading example of forest recovery and sustainable development. In 2019, Costa Rica received a UN Champions of the Earth award, and in 2021, won the Earthshot Prize for its work driving the global environmental agenda.
Belize’s debt-for-nature swap
The Belize Barrier Reef stretches for 300 kilometres along the country’s coastline, providing critical habitat to endangered hawksbill turtles, manatees and several threatened types of sharks. But climate change, excessive fishing, mangrove felling and unchecked coastal development all pose risks to this fragile ecosystem.
In an effort to protect the reef, the Belize government signed a US$364 million debt-for-nature swap with The Nature Conservancy on November 5, 2021.
Debt-for-nature swaps allow a country’s debt to be restructured or reduced in exchange for commitments to invest in biodiversity. Here’s how it worked in Belize’s case…
- A subsidiary of The Nature Conservancy raised US$364 million from investors to finance marine conservation projects in Belize.
- The Nature Conservancy then lent these funds to Belize, with a low interest rate, a 10-year grace period on principal repayments and a long maturity of 19 years.
- Belize then used this money to pay off US$553 million in debt at a discounted price of 55 cents per dollar, reducing its debt burden by 12% of GDP.
- In return, Belize committed to spending US$4.2 million annually on marine conservation until 2041, and doubling its marine-protection parks from 15.9% to 30% of its oceans by 2026.
- A US$23.45 million endowment fund was created to finance conservation after 2040.
It’s still early days, but the benefits of this swap extend far beyond government balance sheets. Belize’s scuba diving and snorkelling operators, the local fishing industry, the creditors that got to sell a high-risk debt claim and reinvest the proceeds, the hundreds of species which call the reef home all stand to gain.
New York’s famous drinking water
Most large cities in high-income countries are required to pass their drinking water through a filtration plant — but New York has long had a special exemption.
The majority of the city’s water comes from a watershed in the Catskill Mountains, about 100 miles north-west of the city, where rainfall is absorbed into the soil, which acts as a highly effective filter, removing fine particles and contaminants. In addition to purification, this watershed also evens out the flow of water in times of high and low rainfall alike.
But, in the late-1990s, the Catskills watershed was being polluted by economic development in the area — think animal waste, fertilisers and pesticides from farms and sewage from leaky systems. As a result, the quality of New York’s water was falling, and the city was under mounting pressure to spend US$8 billion (equivalent to about US$16 billion today) building a filtration plant, which would have an annual operating cost of US$500 million. But the city decided against this option, instead investing in improving the health of the watershed. The city paid crop farmers to go organic, paid livestock farmers to keep their animals away from streams, improved the local sewage systems and purchased undeveloped land for conservation.
Today, New York’s water is famous — so much so that it’s actually been described as the ‘champagne of drinking water’ and is the not-so-secret ingredient in the pizza and bagels that New Yorkers are so proud of.
In 2020, the city had invested about US$1.5 billion in the health of the watershed, according to the Financing Nature report — which is about 19% of the filtration plant’s anticipated cost. If you add the plant’s estimated annual operating cost of $500 million over 30 years, 19% drops to approximately 6% of the total bill in 2020. And this is without accounting for the added value of organic agriculture, access to nature and improved air quality for the local community.
In this case study, investment in the Catskills watershed is justified in contrast to the cost of building a filtration plant — but the logic can apply to any number of scenarios. For example, the cost of planting trees to cool a city versus the cost of investing in reflective roofing and cooling materials.
Or, the cost of protecting tropical rainforests versus the cost of a global pandemic. It’s estimated that 1.7 million currently ‘undiscovered’ viruses exist in mammals and birds, of which up to 827,000 could infect humans. And there is evidence that deforestation drives zoonotic disease outbreaks, by creating pathways for diseases to spill out of forest boundaries into human and livestock populations. According to the World Health Organisation, the cost of significantly reducing the transmission of new diseases from tropical forests would cost between US$22.2-30.7 billion each year, which sounds like a lot, until you compare it to the US$8.1-15.8 trillion that the COVID-19 pandemic will likely end up costing.
Team TAP’s mission is about more than good coffee
Beyond government initiatives, market forces and private sector leadership can also drive conservation and sustainable land management. Team TAP is a producer, trader and exporter of Colombian coffee, cacao and macadamia nuts. Working directly with 215 local producers, as well as a range of other cooperatives, the organisation sells to companies around the world that are willing to pay premium prices for nature-positive products.
For Team TAP, production and conservation are inseparable. “Biodiversity is very important to coffee production, in particular,” explains CEO Camilo Arguello, so much so that Team TAP’s partners protect approximately 5,000 hectares of dry tropical rainforest.
At the heart of everything Team TAP does is a simple but powerful belief: a community’s economic development and the health of its ecosystems are both critical to quality of life. That’s why conservation is built into the price of every product — and why Team TAP reinvests its revenue into community and environmental initiatives.
For example, Team TAP has school-based programs that get kids involved in planting and nurturing saplings to foster a love for nature and teach sustainable farming techniques. The organisation also works with Colombian universities and local elders to help communities to transition degraded pasture and cropland to biodiverse and resilient agroforestry systems. And Team TAP is creating a route to market for a group of 12 Indigenous Arhuaco women who produce a range of traditional, artisan crafts.
“Our objective as an organisation is to improve the quality of life and conserve the natural environment in the regions where we are working,” Camilo explains. “The more we grow, the more we invest, and the more impact we have.”
Since early-2024, this growth has been supported by a Wedgetail nature-linked loan, which ties financial incentives to ecological outcomes. Our nature-linked loans begin with competitive interest rates and co-designed nature milestones. As these milestones are achieved the interest rate reduces, directly rewarding biodiversity-positive practices and demonstrating another example of how finance can be a tool for ecological progress.
The price of priceless
These case studies show that translating nature’s worth into economic terms can facilitate real, lasting change. However, the unavoidable, unignorable problem with putting a financial value on nature’s ecosystems is that the price will always be too low.
We have nature to thank for the air we breathe, the water we drink, the food we eat, the medicines that keep us healthy and the homes that give us shelter. Assigning a financial value to nature is akin to assigning a price to life itself.
It’s far more accurate to say that nature is priceless.
However, on a balance sheet, priceless looks a lot like $0.
This is because priceless is impossible to imagine. What does this look like? How many zeroes does a number without zeros have? It’s too large a concept to be truly meaningful. Most people struggle to imagine a billion dollars, or a trillion, let alone something that’s beyond price itself. It doesn’t matter that the logic is sound, that the value of our forests, rivers and wetlands surpasses imagination, because if we struggle to imagine it, we’ll struggle to invest in it.
It’s true that if you assign a financial value to nature, you sacrifice something innate and invaluable in the process. But, perhaps the perspective, comparability and comprehensibility you gain, makes this trade-off worth it.
