Metric gold: Are better measurements the key to boosting sustainable finance?

Accounting for progress in a universal language can attract investors, finance experts say

Taking stock of growth progress of the Afrormosia tree in a forestry project in the Democratic Republic of the Congo. Axel Fassio, CIFOR
4 December 2019

Data and spreadsheets might be a long way from the everyday work of farmers and foresters who spend their days turning soil and tending trees, but financial accounting is becoming a key component in reshaping a planet with healthier and more productive landscapes.

A failure to identify the right metrics, or measure them correctly, is holding back investment needed to tackle climate change, land degradation and biodiversity loss, according to sustainable finance investors, policymakers and experts who gathered in Luxembourg at the fourth annual Global Landscapes Forum Investment Case Symposium on 30 November 2018. From Gross Domestic Product (GDP) to knowing the right performance indicators and whether efforts to restore land are working, the underpinning message of the Forum was that the world needs to reorient its system of financial accounting to include nature and the services it provides.

“Accounting is destiny,” said Jennifer Pryce, CEO at Calvert Impact Capital, an impact investment firm that oversees USD 435 million in debt for organizations underserved by traditional financial markets and directed to social and environmental initiatives, including sustainable agriculture and affordable housing. “Once you can have the accounting and demonstrate the business case, the investment will follow.”

An estimated USD 800 billion is required to restore 350 hectares of degraded land – an oft-cited goal of initiatives such as the Bonn Challenge – and speakers stressed that investors need the right signals, such as risk reduction and attractive track records in landscape projects, in order to up their contributions to this amount. The returns can be lucrative: for every dollar invested in landscape restoration, at least USD 7 is returned, according to a recent report. Each year 12 million hectares of land is lost to degradation, which costs the global economy more than 10 percent of annual GDP in lost ecosystem services.

One of the first steps is to replace GDP with a better measure of social, environmental and economic accounting, according to Tim Christopherson, who heads the freshwater, land and climate agency at U.N. Environment Programme (UNEP).

“We have to move beyond GDP and include social and environment welfare,” he said. “We need to account for nature in accounting.”

UNEP is working to replace the supremacy of GDP in tracking countries’ ledgers with a new method of national accounting, called the System of Environmental-Economic Accounting, or SEEA. The framework integrates economic and environmental data, including emissions, changes to water quality and changes in stocks of environmental assets – all things that benefit humans and maintain a healthy environment for future generations. The SEEA is one of several that have evolved out of frustration with the narrow definition of economic growth measured by GDP.

Tony Simons, director general of World Agroforestry (ICRAF) gave opening remarks at the sustainable investment-focused Global Landscapes Forum Luxembourg 2019. Pilar Valbuena, GLF
Tony Simons, director general of World Agroforestry (ICRAF) gave opening remarks at the sustainable investment-focused Global Landscapes Forum Luxembourg 2019. Pilar Valbuena, GLF

Alongside national accounting and equally important is a better and universally-accepted set of metrics to determine landscape health, said Tony Simons, director general of World Agroforestry (ICRAF), which has recently merged with the Center for International Forestry Research (CIFOR).

In the same way doctors focus on three key metrics out of hundreds when diagnosing the risk of heart disease, investors and land-use practitioners need to narrow the list of performance indicators used to determine the health of a landscape. In some cases, researchers use as many as 400 or more, adding confusion and uncertainty for investors who need clear guidelines.

“We focus on too many metrics,” Simons said. “We need to develop metrics that are universal. Only then we will know if we are making progress.”

Possible landscape indicators include measuring farmer incomes, greenhouse gas emissions, the quantity or value of food produced, the range of biodiversity as well as governance, investment and progress in implementing international agreements.

In addition, the world needs a landscape register to track value chains and webs and make sure areas with intersecting challenges and opportunities are correctly identified, he said.

Unlike other assets like buildings and vehicles, investors do not depreciate land, assuming that its value remains intact over decades, said Simons.

“Many places are bankrupt and hugely threatened,” he said. “We need a business case for landscape management.”

Read the full wrap-up of the Global Landscapes Forum Luxembourg 2019 here.


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