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24 May 2019, Gateway House

Pricing nature: India’s opportunity

The re-election of the Bharatiya Janata Party to Parliament means that India’s infrastructure buildout will continue apace. This will be a heavy load on the environment. It will also have to abide by Prime Minister Modi’s commitment to the successful implementation of the Sustainable Development Goals (SDGs) by 2030. This offers an opportunity for the government to think innovatively about measures for sustainable development, particularly in pricing nature

Former Researcher, Geoeconomic Studies Programme and Manager, Research Office, Gateway House

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Prime Minister Narendra Modi has already pledged his commitment to the successful implementation of the Sustainable Development Goals (SDGs) by 2030. He also has an ambitious infrastructure buildout for India, slated to cost $778 billion[1] over the next three years. The environmental degradation is inevitable, and not much creative thought has gone into balancing nature with progress.

But good news is at hand. Global efforts at pricing nature have begun, largely in developed countries. The time is right for the Modi government to rethink seriously the true pricing of nature, using innovative and enlarged metrics, which can be a model for other developing countries as well.

Some governments, like Germany, Norway, the Netherlands and the UK, have actively been working on developing these metrics over the last decade. They have successfully deployed capital towards sustainable projects. However, they have been unable to persuade the private sector to increase their contribution to the sustainability of projects they fund.

Clearly, there is now a critical need to realign the global financial system to provide for these sustainable objectives and metrics.

An important step in this process is to calculate the ‘cost of natural capital’ or the ‘price’ incurred by nature for the services it provides. Those services include the use of water, forest or soil plus the damage caused by emissions or waste.

The lack of simple, transparent valuation methodologies and data inconsistencies makes it difficult for companies to price environmental externalities and measure the impact of their operations on nature and for governments to gauge the impact of their public projects. There is no global, national or even local law that requires companies to disclose natural capital assessments to their regulators or to investors.

Only a few concrete assessments exist today. For example, Environmental Impact Assessments and Environmental Statements are part of feasibility studies, but do not include a monetary value of that natural capital to the project. They simply measure impact in physical quantities.

In fact, there are three ways of actual measurement:

  • develop and use instrumentation and satellite-imagery to analyse the real time usage of natural resources;
  • identify heavy-polluting industries such as thermal power, oil refineries, chemicals, automobiles, cement and construction, and measure their extractions from nature, and their polluting emissions; and
  • establish industry-specific coalitions, comprising of officials, business representatives and scientists, to jointly develop natural capital valuation methodologies.

Once a price is attached to these public goods, the cost must be included in the feasibility studies for public projects, especially infrastructure. This will change the cost-benefit analysis of each public project, in turn:

  • helping governments make decisions based on “true cost”;
  • forcing contracting companies to initiate sustainable projects and reduce their ecological footprint;
  • improving public awareness through public service messaging, of the true price of externalities, the cost of capital and the net present value of each project;
  • helping investors gauge project sustainability and viability, and make informed decisions in favour of or against.

Key to the success of this effort are transparency and accessibility to all stakeholders – regulators, investors and the general public. Therefore, these assessments must be included in all financial reporting and disclosures.

Some initiatives to voluntarily calculate the value of natural capital are already underway, officially with multilateral institutions like the G20, the UN and World Bank; with independent international institutions; regionally with the EU; and privately with companies like India’s Wipro and Germany’s Puma.

Initiative More information
Multilateral initiatives
G20’s Green Finance Study Group (GFSG) In 2017, the group examined the maturity of Environmental Risk Analysis (ERA) processes and the need for Publicly Available Environmental Data (PAED). This exercise identified a range of ERA tools and methodologies being used to integrate environmental risk into a company’s risk management for allocating capital towards green opportunities.
An industry-led task force on ‘Climate- related Financial Disclosures’ (TCFD) Convened by the Financial Stability Board (FSB), it has developed voluntary climate-related financial disclosures across four aspects of an organisation’s operations – governance, strategy, risk management, metrics and targets. These disclosures can help investors, lenders and the insurance industry price climate-related risks and opportunities.
The United Nations System of Environmental Economic Accounting (UN SEEA)[2] It has developed a framework to capture economic and environmental data in national and cross-country databases.
The United Nations Principles for Responsible Investment (UN PRI)[3] It has developed six voluntary principles with an international group of investors to integrate ESG parameters into their investment decisions.
ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure) Launched by the Natural Capital Finance Alliance (NCFA), it is the world’s first comprehensive tool, linking environmental change to its consequences for the economy. The web-based tool will help global banks, investors and insurance firms assess the risks that financial institutions face from environmental degradation, such as the pollution of oceans or destruction of forests.
The World Bank-led ‘Wealth Accounting and Ecosystem Partnership Services’ (WAVES)[4] It was launched in 2010 to integrate natural resources into development planning processes through natural capital assessments. Countries like Botswana, Colombia, Costa Rica, Madagascar, the Philippines, Guatemala, Indonesia and Rwanda, have adopted this methodology.
Data Information Flow project viii Launched by the Natural Capital Coalition and the UN Environment World Conservation Monitoring Centre (WCMC), it focuses on the high-frequency quantitative data required on biodiversity, water use, freshwater ecosystem use, greenhouse gas emissions (GHGs) and terrestrial ecosystem. It calls for the development of new web-based tools for verifying large datasets, design of taxonomies to organise data, and suggests the use of proxies where data is unavailable.
Independent Initiatives
Global Reporting Initiative (GRI)[5] It has created the first and most widely adopted standards for global sustainability reporting.
CDP[6] Disclosure Insight Action (formerly the Carbon Disclosure Project) It runs a global disclosure system that enables companies and countries to measure and manage their environmental impact. It maintains a database of self-reported disclosures made by its members.
The Natural Capital Protocol of the Natural Capital Coalition It provides generalised guidelines that can help organisations identify their direct and indirect impact on the environment and gauge their dependencies on natural capital. It provides the framework for a company to conceptualise, measure, integrate natural capital assessments into its investment decisions. It has formulated sector specific guidelines for apparel, food and beverages, forest products, agriculture and financial services. It is currently the most widely used framework, but its adoption is voluntary and it does not explicitly recommend a formula or tool to value natural capital.
Some country-specific, region-specific initiatives
The Securities and Exchange Board of India (SEBI) It has mandated the top 500 listed companies on Indian stock exchanges to include ‘Business Responsibility Reporting’ in their annual reports.
European Union Directive 2014/95/EU It has mandated companies across the EU with an average of 500 employees to disclose a consolidated non-financial statement[7] on environmental impact.
Private Initiatives
Wipro With the help of Trucost,[8] it has been disclosing its natural capital valuations since 2013-14. Wipro’s total environmental costs were equal to $166.7 million[9] for 2016- 17 of which 46% came from GHG emissions, 19% from air pollution and 25% from water consumption.
Puma With the help of Trucost and PricewaterhouseCoopers, it created the world’s first Environmental Profit and Loss Account in 2011. Its parent company, Kering, contributed to the Natural Capital Protocol.

*Collated and analysed by Gateway House

In a welcome move, in November 2018, private corsortia, comprising global business leaders and impact investors submitted an open letter[10] to the G20 leaders, recommending the formulation of a special commission to develop accounting standards to measure environmental impact – through impact-weighted financial analysis.

However, all these initiatives have limitations: they are specific to a particular natural resource, sector or industry and cannot be easily replicated or customised.

A better format may be a uniform framework within which sustainable and acceptable solutions can be developed by individual countries, keeping domestic factors in mind. Multilateral forums like the G20 and  UN can play an important role by creating capacities for countries for this. Seminars and workshops can be organised with local stakeholders who can weigh in on country-specific concerns, thereby creating a robust model.

The development and full implementation of these valuation methodologies will take time. But it will be a revolutionary step towards the mainstreaming of sustainable finance.

Purvaja Modak is Researcher, Geoeconomic Studies, and Manager, Research Office, Gateway House: Indian Council on Global Relations.

Gateway House has put forth this idea in a policy brief titled, ‘Mainstreaming Natural Capital valuation’, written by Purvaja Modak, Akshay Mathur and K.N. Vaidyanathan, for the ‘International Financial Architecture for Stability and Development Taskforce’ of Think20 Japan, under Japan’s G20 presidency of 2019. It was submitted for the consideration of the G20 leaders at the T20 Summit, held in Tokyo, Japan on May 26-27 2019.

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[1] Indian Brand Equity Foundation, ‘Infrastructure Sector in India’, <>

[2][2] System of Environmental Economic Accounting, ‘Data’, <>

[3] Principles for Responsible Investment, ‘About the PRI’, <>

[4] Wealth Accounting and the Valuation of Ecosystem Services, ‘About us’, Top of Form


[5] Global Reporting Initiative, ‘About GRI’, <>

[6] CDP – Disclosure, Insight, Action, <>

[7] Climate Disclosure Standards board, ‘EU environmental reporting handbook: what could environmental reporting in line with the Non-Financial Reporting Directive look like?’, September 2016, <>

[8] Trucost is a private company (a part of S&P Global) that specializes in natural capital valuations

[9] Wipro Sustainability Report 2016-17, ‘Natural Capital Valuation’, <>

[10] Open Letter to governments of the G20 nations, <>