8 Ways to Promote Natural Capital Investments in the GMS

Payments for ecosystem services offer the rural poor incentives to practice conservation.
Payments for ecosystem services offer the rural poor incentives to practice conservation.

By Pavit Ramachandran

Boosting investments in natural capital requires an accurate accounting of its economic value to guide policy-making.

Natural capital has been a key contributor to the Greater Mekong Subregion’s (GMS) rapid economic growth over the past 3 decades. However, the subregion’s key natural capital stocks are in a state of decline.

The GMS is poised to continue developing at a significant pace, but its future prosperity could be undermined unless it invests significantly more in safeguarding and enhancing its natural capital. This need is exacerbated by the subregion’s vulnerability to climate change, natural disasters, and human-induced shocks.

Natural capital includes forests, agricultural land, the atmosphere, oceans and mineral resources. It provides a number of ecosystem services essential to human survival such as food, water, energy and shelter. Representing 20%–55% of the total wealth of its countries, natural capital is a key contributor to GMS economic growth. Across the subregion, 60 million rural people rely directly on it for their daily energy, food, water, and income needs.

Agriculture (including forestry) is the subregion’s main source of employment. The Mekong River supports the world’s largest inland fishery, with annual turnover of up to $3.9 billion. Natural capital also sustains the manufacturing and service sectors, including Viet Nam’s thriving furniture industry, as well as tourism.

The GMS is highly vulnerable to climate change, particularly in low-lying coastal areas critical for agriculture and fisheries. Both sectors are under threat, as are the ecosystems that rural communities rely on to cope with and recover from natural and human-induced shocks.

A significant decline in ecosystem services would directly affect their energy, food, and water security. Declining agricultural yields could drastically impact the livelihoods of vulnerable groups.

[tweet="To meet #SDGs, #GMS countries must invest in protecting #naturalcapital – ADB expert" text="To meet SDGs, GMS countries must invest in protecting natural capital"]

Despite these obvious developmental linkages, there seems to be a misconception that protecting and investing in natural capital is too expensive and does not contribute to competitiveness and economic growth. 

This has resulted in overexploitation of resources and environmental degradation. The World Wildlife Fund estimates that 10-12% of GDP in the GMS is lost every year through overexploitation of forests, land, wildlife, fisheries, and pollution. If current trends of ecosystem loss continue, forgone services over the next 25 years could cost the subregion $55 billion.

Further pressure on natural capital in the GMS can be expected as economic growth boosts demand for food, energy, and water. If natural capital isn’t reflected in policy, countries will struggle to achieve commitments under the Sustainable Development Goals (SDGs), including goals 1 and 2 which undertake to eliminate poverty and hunger, respectively.

To achieve the SDGs, GMS countries need to invest much more in protecting and enhancing their natural capital stocks.

A natural capital approach to policy reflects the economic value of natural assets and services. It represents a fundamental shift away from the widespread perception that natural resources are either valueless or unlimited merely because they are freely available.

Such policies must have robust legal underpinning, with implementation mandatory. Legal systems and monitoring and evaluation processes must be put in place or improved for implementation to succeed. Local, national, regional, and international coordination under broad initiatives like the SDGs is likewise important.

[tweet="ADB expert: #naturalcapital accounting recognizes its value to #GMS countries" text="Natural capital accounting recognizes its value to GMS countries"]

Some GMS countries have begun institutional reforms to give greater authority to environmental agencies, consolidate their functions, and improve coordination with other sectors. Innovative fiscal instruments, such as environmental taxes and incentives, and market-based mechanisms like payments for ecosystem services, are being explored. Environmental safeguard policies and practices are improving, and strategic environmental assessments are increasingly used to create more sustainable sector and area-based investment plans.

But more action is needed. The traditional sources of investment in natural capital in the GMS—official development assistance and government-funded conservation projects—are not enough.

To achieve the required financial, institutional, legal, and policy reforms, the value of natural capital must receive greater recognition at the political level. It’s time to scale up national-level frameworks such as natural capital accounting.

Properly assessing and valuing natural capital and capturing that value in a natural capital accounting framework, can help inform decision-makers about the trade-offs involved.

Here are eight ways that governments, the private sector, development agencies, and other stakeholders can put a natural capital investment framework into operation:

  • Identify key policy and planning processes at the regional and national levels that could significantly increase investment in natural capital.
  • Develop underlying legal and institutional systems.
  • Tailor messages on natural capital investment to establish their relevance to major GMS development challenges.
  • Build technical capacity to develop and deploy valuation and mainstreaming tools and approaches, such as natural capital accounting.
  • Foster science policy links to increase the relevance of assessment and research.
  • Show links between energy, food, and water security and ecosystem‑based approaches to climate change adaptation and mitigation.
  • Mobilize public sector and private sector investment by strengthening fiscal and economic instruments targeting high-priority landscapes and supply chains.
  • Develop viable projects involving the private sector, leveraging new technology that reduces costs and generates positive risk-adjusted returns.

[tweet="#GMS needs to put #naturalcapital investment framework into operation – ADB expert" text="GMS needs to put natural capital investment framework into operation"]

If properly designed and implemented, strategic investments in natural capital under a holistic policy framework can tackle pressing environmental and social issues. The scale of investments must be commensurate with the value of ecosystem services. Such investments encourage inclusive and sustainable growth by supporting the livelihoods of the rural poor and increasing their access to economic opportunities.

Payments for ecosystem services offer the rural poor incentives to practice conservation. Land tenure reforms, especially those targeting marginalized groups, stimulate local investment to build productivity and resilience to climate change.

Political support is crucial, as it provides a basis for including natural-capital accounting in regulations, incentives, and market instruments.

Recent policy and investment commitments from the GMS countries offer renewed promise. Two new GMS strategies for agriculture and environment to be implemented from 2018 through 2022 focus on innovation, efficiency gains, sustainable intensification, and “integrated landscape”’ approaches.

There will be a strong focus on climate and environment-friendly agriculture, agri-food quality management incorporating natural capital and climate change risks, eco-efficient technologies, and on increasing investments in natural capital.

The challenge is to build on these positive steps. Investing in natural capital is not an unnecessary burden, but rather an essential prerequisite for the subregion’s continued prosperity.

This blog is an edited version of an article previously published on Development Asia.