Author: Janet Ranganathan

Investing in ecosystem services will help MDBs improve the livelihoods of the poor.

World Bank Group President Robert Zoellick declared the demise of the term “Third World” in the run up to this weekend’s spring meetings of the IMF and World Bank. Instead, he rightly said, we must recognize that we now live in a multi-polar world.

The developing country divide isn’t the only glass wall that needs to be shattered. The development and environment communities must also stop viewing their goals as separate or even at odds with each other. As nature declines, so do the many vital goods and services it provides to people. These range from the life-giving – fresh water, food, wood fuel, flood protection – to the life-affirming – recreation and spiritual enrichment. When several hundred scientists examined the health of 24 ecosystem services globally for the Millennium Ecosystem Assessment in 2005, only four had shown improvement over the past 50 years. A startling 15 were in serious decline, while five hung in the balance.

Ecosystem degradation inevitably hits the poor hardest. In particular, it increases the vulnerability of the 75% of the world’s poorest people who live in rural communities and depend heavily on nature for a living. One study in India found that while the value of forest services such as fresh water, soil nutrients and non-timber forest products was only about 7% of national GDP, it represented 57% of income for the rural poor.

The World Bank: Primed to Mainstream Ecosystem Services to Improve Livelihoods

Given this relentless erosion of the Earth’s natural resources, and their importance to poor rural communities, it is hardly surprising that we are not on track to meet the 2015 Millennium Development Goals to combat poverty. On current trends, most developing countries are likely to miss many of their MDG targets.

The World Bank, however, is uniquely positioned to help us get back on track to meet these global targets by investing in nature in order to improve the livelihoods of the poor. As the leading multilateral development bank, it can leverage the funding of many other actors. It also has many talented environment experts well placed to support sectors—such as water supply and sanitation, agriculture, energy, and forestry—that heavily depend on or affect ecosystem services. A new report by the World Resources Institute, Banking on Nature’s Assets, presents a roadmap for the World Bank and other multilateral development banks (MDBs) to use in mainstreaming ecosystem services, and including them in their cost-benefit analyses.

To strengthen the business case for investing development dollars in ecosystems, MDBs need to expand the focus of cost benefit analysis beyond marketed goods such as timber and crops to include nature’s regulating and cultural services. As the following examples show, such an approach highlights the value of ecosystem services that often do not show up in a traditional accounting approach.

In Costa Rica for example, wild bees from adjacent forests improved coffee yield by reducing the frequency of “peaberries” (small misshapen seeds) by a quarter. Protecting forests, in that case, translated into US $60,000 per year in additional yield for just one Costa Rican farm. In Belize, tourism generated by coral reefs and mangroves represented 12-15 percent of GDP in 2007. In Thailand, the economic value of mangroves rose from around $800 to over $35,000 per hectare when the habitat’s role in providing coastal protection and fish nurseries was included in a cost benefits analysis.¹

An up-front assessment of ecosystem service trade-offs by MDBs can also improve risk management, leading to more robust and equitable development outcomes. For example, dams that supply power to cities, or irrigation for agriculture, often depend on upstream forests to prevent reservoir erosion and siltation. At the same time, dams can undermine a river’s capacity to support fisheries or sustain downstream wetlands that provide water filtration and coastal protection services to coastal communities. Similar trade-offs can exist for developing country shrimp farms which increase export markets, but often at the expense of the coastal protection and nursery services provided by the mangroves they replace. Likewise, palm oil plantations, a growing fixture in southeast Asia, often involve a similar trade-off between the myriad ecosystem services that primary forests provide — including carbon storage, pollination, and erosion control — and global exports.

Aligning Policies and Incentives to Protect Natural Resources

The World Bank and partner countries need to build national capacity to design policies and incentives that align the interests and actions of farmers, forest owners, and other users of natural resources with sustaining rather than degrading ecosystem services. One well known way of doing this is to pay users for ecosystem services, but many other possible approaches include:

• land zoning to protect ecosystem service hotspots;
• elimination of perverse subsidies that support activities that degrade ecosystems;
• reform of taxation policies to target those who benefit from or degrade services; and
• certification programs for sustainably produced goods such as timber, palm oil, and shrimp.

An ecosystem services approach is not a substitute for the traditional focus of environment specialists on biodiversity and protected areas. Both are needed. But ecosystem services based approaches are particularly suited to MDB efforts to mainstream environment into their core lending operations in order to improve development outcomes.

Breaking the Development-Environment Glass Wall

With nature in decline worldwide, how can the World Bank and other multilateral development banks help not only to implement but also to scale up ecosystem services-based approaches? While experts on either side of the environment-development divide peer through more often these days, a glass wall too often remains not only in development finance institutions, but also in national governments. Most economic and environment ministries are still at an early stage of learning to speak each other’s languages. The World Bank, in particular, could play a crucial role in bridging this divide by convening ministers and economists, and shaping macroeconomic solutions to the linked problems of ecosystem degradation and poverty. Such a group could build and communicate the business case that healthy ecosystems are fundamental to reducing poverty and achieving economic development. It could provide guidance on investments in ecosystem services, and share best practice in incentives for reducing degradation and integrating the value of natural capital in national accounts.

As they convene in Washington this weekend, the World Bank and IMF leadership would do well to ponder how to take a lead in shattering the environment/development glass wall which still divides the new multi-polar world.

Janet Ranganathan is the Vice President for Science and Research at the World Resources Institute.

Frances Irwin is a former Fellow in the Institutions and Governance Program at the World Resources Institute.

The World Bank and other Multilateral Development Banks (MDBs) are revising their environmental strategies for development planning. As they do so, they can and should integrate nature’s ecosystem services into their planning and decisions, says a new WRI report.

Janet Ranganathan, Vice President of Science and Research at the World Resources Institute and lead author of Banking on Natures Assets explains how economic development and a healthy environment can co-exist.

Q: What are ecosystem services?

Ecosystem services are the benefits that nature provides to people. Food, freshwater, timber and cotton for clothes are some of the most familiar services. But there are other types of services that we often take for granted, for example the ability of forests to sequester carbon and mitigate climate change and the way in which wetlands filter and purify water.

We all depend on ecosystem services for our well-being, and nature’s health increasingly depends on humanity. Every development or investment decision made around the world both depends on and has an impact on nature somewhere, or somehow. Over the past century, our relationship with nature has been increasingly destructive — degrading two thirds of ecosystem services worldwide. Our report, Banking on Nature’s Assets, explains that it doesn’t have to be that way.

Q: How can focusing on ecosystem services strengthen development?

Development and ecosystem services are intertwined. We can’t really deal with one without dealing with the other. However, the current mindset of society is to put economic development and nature in separate boxes, separate government agencies and separate academic disciplines. We think that protecting the environment is an impediment to development. We think it’s a cost. But when we consider the environment in terms of ecosystem services, that mindset can change. We can instead see and value the environment as a series of assets or benefits that development in fact depends upon.

By treating ecosystems as assets that generate benefits, development agencies can help developing countries grow economically while sustaining the environment and the livelihoods of those people who depend on ecosystems.

Q: How do development agencies currently treat ecosystem services?

Traditionally, development agencies and development planners focus on single ecosystem services, particularly those that can be marketed, such as freshwater, timber, crops and fish. They overlook ecosystem services that regulate important natural processes such as climate, disease, erosion, water flows, and pollination, as well as protection from natural hazards.

For example, in the 1980’s the World Bank saw aquaculture as a great opportunity for economic development in Latin American and Southeast Asia. With the Bank’s support, Thailand’s government cleared the mangroves surrounding fishing communities and replaced them with shrimp aquaculture farms. By 2007, Thailand was exporting seven times more frozen shrimp than 20 years before. While it was a very beneficial strategy for a select group of shrimp farmers, no one considered the less obvious services previously provided by the mangroves—coastal protection during high tides, storms and hurricanes, and spawning grounds for fish that supported the livelihoods of local communities. As a result, the development of aquaculture farms left local communities vulnerable to increased storm damage, depleted offshore fisheries, water pollution and mosquito infestations.

Q: Don’t MDBs already consider ecosystems services through safeguards?

In the past, cost benefit analysis and safeguards such as impact assessment have not usually incorporated the full range of ecosystem services and how changes to ecosystem services in turn affect those people dependent on those services. The shrimp aquaculture example also illustrates how a development strategy can inadvertently create distributional effects when important ecosystem services are overlooked. The shrimp farm benefits primarily accrued to the few shrimp farmers and to those in export markets such as the U.S. and Europe who enjoyed “cheap” shrimp. In contrast, poor coastal communities who depended on the former mangroves for spawning grounds and for storm protection lost out. By systematically looking at the full range of ecosystem services that their strategies depend upon and impact, development planners can minimize and better manage ecosystem services trade-offs and increase the chances of development outcomes that are both sustainable and equitable.

Comparing the Economic and Social Value of Mangroves and Shrimp Farms

Q: How can Banking on Nature’s Assets help MDB’s?

Banking on Nature’s Assets identifies entry points for mainstreaming ecosystem services into MDB’s core operations. These range from country assistance strategies and environmental analysis to sector work and development policy loans. The report also presents a range of tools and policy options that MDBs can use to help country partners sustain their precious capital. It concludes with recommendations for scaling up the use of an ecosystem service approach in MDB’s core operations.

Q: What tools can development planners use to make trade-offs among multiple ecosystem services?

These tools and policies are becoming available. For example, a comprehensive list of ecosystem services is the most basic tool in moving from an approach that focuses on a single service to one that focuses on the trade-offs among multiple services. The Millennium Ecosystem Assessment used a list and a refined version is available on WRI’s website. Other tools provide frameworks to prioritize services for attention and to assess the condition and trends of those selected for attention. Mapping and valuing ecosystem services are also important tools. WRI has worked with Uganda to produce maps that overlay geo-referenced information on population and household expenses with spatial data on ecosystem services. It can now flag areas to introduce strategies that benefit both wetlands and the people depending on the services these wetlands provide. Uganda has used valuation in helping make decisions. For example, a study of the Nakivubo wetland showed that conversion of wetlands was driving up the costs of providing fresh water to 2 million residents in Kampala, Uganda. As a result, decision makers decided not to drain it for housing and industry but to make it part of the city’s greenbelt.

Q: What about policies that sustain ecosystem services?

Banking on Nature’s Assets explains how to determine the most critical ecosystem services in a particular location and then select the most effective policies for sustaining them depending on a country’s capacity and existing laws and policies. MDBs are already playing an important role in introducing some policies such as payments of ecosystems services. In the future, they can help countries develop policies that transform the ways in which landowners manage their land. Instead of income only from a single service like providing timber, for example, policies can encourage landowners to earn income from ecotourism, producing Forest Stewardship Council-certified timber, sequestering carbon to protect the climate, or maintaining a wetland’s filtration and flood prevention capacity.