Nature loss is frequently portrayed as merely an environmental issue. The dwindling of species, loss of habitats, deteriorating soil quality and riverine pollution are traditionally treated as problems of conservation policy. Biodiversity loss also constitutes an economic problem.
Sound ecological systems underpin food provision, water security, flood mitigation, climate mitigation and adaptation, health, tourism, fisheries, forestry and the livelihoods of rural communities. As these systems falter, the associated costs do not simply vanish; rather, they are manifested in the public purse, the household budget, business exposure and reduced economic resilience.
The economics of biodiversity is not about attaching a monetary value to every plant and animal, nor is it to argue that nature is important only for its ability to generate financial capital. Rather, it is to acknowledge that economies rely on functioning natural systems, and that where the natural systems break down, the economic fallout will be evident.
Nature is part of economic infrastructure
In most economies, we have infrastructure such as roads, energy grids, ports, education facilities, health services and digital connectivity. Such infrastructure is largely visible and tangible, and governments are accustomed to planning and maintaining it and bringing it within public finance planning.
Nature is similarly an infrastructure, if often more difficult to see.
Natural systems provide services such as:
- Water regulation, carbon storage and slope stabilisation from forests;
- Flood risk reduction, pollution removal and improved water quality from floodplains;
- Agricultural production supported by healthy soils;
- Food crop support from pollinators;
- Fresh water, fish supplies and recreation from rivers;
- Storm protection from coastal ecosystems.
Such services are not optional additions. Rather, they underpin economic activity. The economic value of nature should therefore be taken more seriously within policy and budget-making decisions.
If we lose the flood protection services provided by a wetland that protects a nearby urban area, the flood risk will remain and the cost of dealing with that may fall into infrastructure planning, such as increased public spending on flood protection. If soil productivity declines, farmers will spend more to maintain yields through additional agricultural inputs. If pollinator populations drop, crop yields will be more precarious.
Nature loss is thus not only the loss of wildlife: it is also the loss of capacity. Nature loss is the loss of useful, protective and productive infrastructure.
Why markets often miss biodiversity
Biodiversity is so undervalued by many decision-making processes because the price signals within many economic markets do not capture the full value of nature.
A forest could have value to timber, agricultural producers or developers. It may have another value in terms of carbon storage, regulation of rainfall regimes, habitat provision, water quality maintenance and local livelihoods. However, all these values may be absent from the market price.
In this context, there is a policy challenge. If private decision makers can extract value without recognising public costs, and those costs are only apparent further down the line, biodiversity decline will persist.
Thus, a misrepresentative accounting of the economy is created, with economic activities harming nature seemingly profitable because society, future generations or other ecosystems are absorbing the costs. Conversely, actions to preserve or restore nature are seen as more expensive, because the benefits of such actions fall across communities, sectors, and time.
Hence, we need to go beyond relying on market price signals to protect the environment. There needs to be public policy intervention that changes the incentives currently encouraging the apparent cheapness of nature loss.
Biodiversity loss is a cost for governments
When ecological degradation occurs, public funding is often mobilised.
Governments fund flood disaster relief following extreme flooding caused by ecosystem decline. Deteriorating water quality drives up treatment costs. Erosion lowers productivity and contributes to sediment loads in rivers and reservoirs. Heat stress and air pollution strain the health service. Collapsing fisheries affect coastal communities. Invasive species result in longer-term management expenditure.
These are fiscal concerns.
By failing to consider the natural environment, governments can make trade-offs between departments, potentially saving public money on one budget that later costs more on another. A local planning department may approve a development scheme in a floodplain, and many years later the emergency budget will cover the cost of cleaning up after a flood. Agriculture policy might promote practices that affect water quality, leading to higher bills from water companies in dealing with the pollution.
Better budgeting should take into account these cross-departmental connections. Government expenditure should not only consider the cost of taking action on the environment in the short term, but also the costs of inaction further down the line.
Food systems rely on biodiversity
Agriculture is one of the most obvious instances of economic dependency on the natural world. The production of food relies upon soil organisms, pollinators, regulation of water, biological pest control and biodiversity. Without those, crop production becomes more reliant on artificial inputs and more vulnerable to shocks.
This is why biodiversity and ecosystem services are key for food security. The natural world acts as a partial foundation for agricultural production.
The economic impact of biodiversity loss in agriculture may be more gradual. Yields become more volatile, pests become more difficult to control, soil requires more fertiliser, water supplies become less dependable. As the natural foundations for farming become less reliable, farmers may face higher production costs and more exposure to climate extremes.
Preserving natural environments within agricultural areas is therefore not an optional add-on. It is a method of safeguarding productivity.
This is directly related to the concept of land as an environmental asset. Land is not simply where economic activity takes place. It is a fundamental input in the economic system.
Pollution involves significant economic costs
Pollution is frequently considered to be an environmental issue at a local level, but it also carries wider economic implications.
Chemical pollution, pesticide overuse, run-off of nutrients from fields, emissions from industry and mismanagement of waste can all threaten ecosystems and human well-being. This leads to higher health bills, costs of water treatment, lost productivity, collapsing fisheries, lower tourism revenues, and degraded land.
In other words, biodiversity economics has to address the impacts of pollution and chemicals, not just the conservation of habitats.
For instance, poorly used pesticides can harm pollinators, freshwater life and beneficial predators. In the short term, the positive impact may be more effective crop protection, but in the long term the negative impact could include reduced resilience to environmental disturbances, and an increased dependence on pesticide use.
This is why efforts to reduce environmental risks from pesticides are also an economic matter.
Where there are incentives that encourage the immediate commercial benefit at the expense of a delayed negative impact, budgets and markets will make poor choices.
Nature risk is a business risk
The loss of nature is an economic issue for the business sector too.
Businesses rely upon access to land, water and materials, stable supply chains, and resilient ecosystems. Food production businesses rely upon agriculture. Building relies on materials and land. Tourism relies on landscapes and wildlife. Fisheries rely on marine ecosystems. Insurers rely on protection against floods, fires and storms, which can be exacerbated by ecosystem degradation.
In light of this, financial markets are becoming increasingly aware of nature-related risk, insofar as biodiversity loss can affect asset values, loan books and investment strategy.
This does not mean that nature should only be protected if business is affected. Rather, biodiversity loss is not external to the economy. It is inherent within the economy.
A company may not directly manage a forest, river or farm, yet its supply chains may depend on these same systems. Should nature suffer, then this risk can migrate along the supply chains for production, trade, finance and insurance.
Public budgets can support restoration
The economics of biodiversity is not just about risk, it is also about investment.
Restoring nature can generate public value. Restoring wetlands can reduce flood risk and increase water quality. Reforestation can increase carbon storage, habitat provision and livelihoods. Restoring coastal ecosystems can provide natural defence against storms. Improving soil health can support farming resilience.
This will require spending, but can also deliver cost savings.
Thus, public budgets must regard nature restoration as part of the broader, long-term investment strategy. This will require improved budget methodologies, enhanced prioritisation and more co-ordination between environmental and finance ministries.
Unless nature is regarded as more than a conservation expenditure, it will be vulnerable in any budget bargaining. If it is seen as being part of national resilience, public health, water security and economic stability, then it is far harder to ignore.
The problem of harmful incentives
Nature loss is continuing, not least because many public and private incentives are misaligned.
Indeed, subsidies, tax incentives, planning systems, procurement standards and investment guidance can all serve to encourage habitat destruction, resource overuse and pollution generation.
So biodiversity finance is not just about finding more money for nature conservation. It is also about stopping money from going in the wrong direction.
A government may fund nature restoration, but also finance land-use patterns that destroy nature in other places. Biodiversity targets may be set, yet infrastructure planning may proceed in ways that fragment natural ecosystems. Clean energy can be financed, yet planning may not direct development towards sites that are less sensitive to biodiversity impacts.
Such misalignment can squander resources and reduce impact. So there are calls for better rules, budgets and accountability to align public spending with environmental goals.
Natural resources are not limitless
Modern economies depend on large quantities of land, water, biomass, minerals and materials. This places pressure on ecosystems at both the local and global scale.
The more the economy behaves as if natural resources are limitless, the more the economy creates future resource scarcity and damage.
This is why biodiversity economics links with natural resource pressures. Natural resource extraction, waste, land conversion and pollution can all impact upon habitats and species.
A more circular and efficient economy may help to ameliorate some of these pressures. Simply extending the lifespan of products, cutting waste, fixing what is broken, upgrading recycling processes and better designing supply chains would all help cut demand for new resources from the ground.
But the resource efficiency approach cannot stand alone without clear limits on extraction. There are areas that should not be mined or felled no matter how attractive it is economically or whether it is technically possible to do so.
Climate policy and biodiversity budgets
Climate change and biodiversity loss are inextricably linked.
Climate change is placing ever greater pressure on the world’s plants, animals, water resources and food production. Degraded ecosystems are less effective at sequestering carbon, buffering water flows and dampening the impacts of climate change.
We need to integrate biodiversity and natural capital considerations into climate change and energy policy, because any decisions on renewables, bioenergy, carbon removal, forestry, agriculture and infrastructure all have implications for nature.
A climate policy that does not take account of biodiversity may trigger further negative impacts. A biodiversity policy that does not take account of climate change may fail to deliver the intended results in a changed climate.
So, we need climate finance and biodiversity finance to be integrated into the same budgeting frameworks, so that many of the solutions are the same: wetlands, healthy soils, forests and sustainable land use, for example.
A global issue with local costs
Biodiversity loss is a global environmental challenge with consequences around the planet. But biodiversity loss costs money, often very expensive money, and these costs are often borne in the most local of settings.
When wetlands are drained, there is a loss of flood protection for a local community. Soil fertility declines for local farmers. Coastal communities lose fisheries or tourism. Urban areas face greater heat and water stress. Local communities, including Indigenous peoples, lose cultural landscapes, livelihoods, and access to natural resources.
This matters for policy design.
While economic assessments focus on biodiversity’s aggregate impacts at national scales, they need to go further. Who is benefitting, who is paying, who is at risk? Nature loss often hurts the people who had the least role in causing it and the least capacity to cope.
The biodiversity economy must therefore include considerations around social justice, community engagement and local knowledge.
The economy runs on nature. But policy has not yet caught up.
Nature loss is not free
Perhaps the greatest misconception in economic thinking is that nature loss is free. It is not.
When soil loses fertility, when rivers become polluted, when fisheries collapse, when forests are cleared, when pollinators dwindle, or when flood risks increase, there is an economic cost. Sometimes households pay. Sometimes farmers pay. Sometimes businesses pay. Governments pay. Future generations pay.
So, the economics of biodiversity means we need to put prices on these damages now. We cannot wait until the loss is irreversible.
We should not protect natural capital only because it is useful for people. It has value in itself, beyond economics. But any economic system that does not account for biodiversity will continue to exploit it and degrade it.
The policy challenge then is to design budgets, markets and institutions that acknowledge this fundamental fact: healthy economies require healthy ecosystems.
Biodiversity loss is therefore not just an environmental problem; it is a policy issue, a budgetary matter, and a long-term risk to the economy.
