Environment: natural capital and ecosystem service valuation

Nature counts

20 March 2017

Property professionals should all be invested in natural capital and ecosystem service valuation. Morgan Taylor and Lisa Lange explain why

From an environmentalist’s perspective, last year’s Autumn Statement was notable for the allocation of £15m in funding for natural flood prevention measures. While this was a rather small gesture, it could, with optimism, be seen as a turning point in the political rhetoric.

This money is a metaphorical deposit in the ‘Bank of Natural Capital’, and will go towards ecosystem service provision, something that has not been explicitly allowed for in previous statements. Ecosystem services are the beneficial outcomes of functioning ecosystems – biological communities and their chemical and physical environments, such as rivers, wetlands, woodlands or coastlines – and can be divided into four key categories.

  • Cultural: benefits for people’s health, wellbeing and cognitive development as well as the aesthetic value of experiencing nature.
  • Provision: products obtained from ecosystems, such as food, fuel, pharmaceuticals or fresh water.
  • Support: services such as nutrient cycling, photosynthesis and soil creation.
  • Regulation: processes such as carbon cycling, air quality control, water regulation, pollination, natural hazard reduction, pest regulation and, most important now, climate change regulation.

These are the manifestation of what is termed natural capital, the stock of renewable and non-renewable resources from which we derive value. Inherently, all financial capital relies on its natural cousin, with the flow of associated services providing us with the water we drink, the food we eat and the air we breathe. But few have heard of the concept, and it has been rare for valuation of natural capital to feature in large-scale economic decision-making, particularly in the planning process.

Our indentured ecosystems are essential to our ability to combat climate change and sustain our comfortable 21st-century existence.

Valuation assessments

It is becoming increasingly important for us to consider more than immediate financial returns when making development decisions.

It is becoming increasingly important for us to consider more than immediate financial returns when making development decisions. One major issue, however, is determining who should foot the bill for ecosystem service provision, because the services are in effect public goods that may benefit many even though no-one in particular is obliged to pay.

As an example, this issue is evident when considering major catchment management for rivers that cross national borders: impacts to the riverine ecosystem upstream in one administration could have unforeseen consequences for provisioning downstream in another. Valuing the services at least provides some financial context for management in the wider sense of the service, or in effect, the service provider – the ecosystem itself.

Ecosystem service valuation is a relatively new concept, and one steeped in controversy. The idea of placing a value on nature, while useful, poses many risks, and paves the way for all natural capital decisions to be made from a purely financial perspective. Ecosystem service valuation should not only dwell on financial output, but also on often unquantifiable elements such as aesthetic or even spiritual value. Implicitly, the valuation process runs the risk of making a trade-off between a development and ecosystem conservation, particularly where assessment may prioritise a measure such as habitat destruction. It is therefore best handled with care.

Ecosystem service valuation still theoretically allows for non-monetised elements to be effectively traded through the provision of compensatory service provision, whereby damage done on site is redressed by measures elsewhere. The government’s biodiversity offsetting pilots of 2012–14 and the “no net loss” calculator being used by High Speed 2 are variations on this approach.

There are a variety of tools available for ecosystem valuation, alongside a bewildering amount of literature. What they have in common is that most make a distinction between direct services such as fish, timber, water and so on and indirect ones including water quality regulation and carbon cycling.

Tools for ecosystem valuation can be broadly categorised according to whether they are calculators for payment of ecosystem services or ecosystem service mapping. The former are market-based tools that aim to foster behavioural change; there is great potential, for instance, in creating markets for provisioning services such as nutrient cycles and pollination. However, these direct, incentive-based mechanisms only account for a single service at a time, rather than for the complexity of the entire system.

Ecosystem service mapping on the other hand aims to identify and visualise different ecosystem services through spatial analysis using GIS technology. Such mapping exercises can then be used as a basis for decision-making and help identify opportunities for ecosystem service interventions, such as woodland restoration, flood plain management or urban green infrastructure creation.

Most ecosystem service mapping tools concentrate on landscape-scale service provision, and can be used to help inform policy, legislation and nationwide approaches to ecosystem management. However, ecosystem service valuation also has potential value for much smaller-scale placemaking. If one can compare the baseline service provision of a site with that of a proposed scheme, it is possible to devise mitigatory or compensatory actions, and – of greater importance to a developer – identify where financial gain can be made from environmental benefits.

What is important when applying any valuation model, sometimes referred to as taking the ecosystems approach, is recognising how all businesses depend on nature and its services to some extent. Such schemes as the Natural Capital Protocol build on this to inform business decision-making in an holistic manner, considering natural capital alongside traditional finances.

RICS and ecosystem services

RICS’ first paper on ecosystem services, Challenges for international professional practice: from market value to natural value (2012) outlined that new approaches to the valuation, appraisal and management of natural capital and nature’s services promised to transform the way land is managed, development is undertaken, assets are appraised and valued, and a range of goods and services previously taken for granted are costed. The paper predicted that developments in ecosystem services would have far-reaching implications for the work of chartered surveyors in valuation, estate and property management, construction, property development and the environment. Since it was issued, there has been a plethora of publications and initiatives on the subject, as the article below outlines. A second RICS paper on the topic, Valuing the environment: chartered surveyors need to engage, will take the form of an insight paper to be published shortly. While this will outline examples involving grasslands and woodlands, the approaches can be applied across a range of natural assets.

Fiona Mannix, Associate Director, RICS Land Group

To ensure you receive a copy of the second paper on publication, please email fmannix@rics.org

Practical considerations

Developers should be encouraged to provide green infrastructure such as living roofs, sustainable drainage, green walls or biodiverse landscaping on all schemes where assessments show that ecosystem service provision could directly benefit the community or the wider environment. Valuations can tell developers how much money their scheme will bring into the local area as a consequence of green infrastructure, or health and wellbeing benefits for the local NHS trust, for example. These can be valuable bargaining chips in the planning process.

Some service valuations are as follows.

  • People are 24% more likely to meet NHS-recommended levels of physical activity and so reduce the sedentary population, if they live within 500m of accessible green space. With potential savings for the NHS of £1.44bn from a 1% reduction in morbidity and mortality rates, there are fairly major implications for providing people with access to green space.
  • Agricultural environmental stewardship was estimated to save 3.46m tonnes of carbon dioxide equivalent a year from 2007 to 2013, roughly equal to saving £1.26bn.
  • Street trees in Greater London are estimated to provide a value of more than £130m a year in storm water alleviation, carbon sequestration, energy savings and pollution removal.
  • Natural coastal floodplain restoration has been shown to have a cost–benefit ratio of 1:3.2.
  • Studies have shown the potential benefit that well-managed natural space can have on inward investment and house prices; a community woodland created in St Helens in Merseyside was estimated to enhance property values in the area by £15m.

The evidence is exhaustive. Forest Research’s Benefits of Green Infrastructure and Natural England’s Microeconomic evidence for the benefits of investment in the environment are two useful reviews that collect a lot of contemporary data on ecosystem service valuation, offering useful further reading.

The Department for the Environment, Food and Rural Affairs is currently working on a comprehensive 25-year plan with the Natural Capital Committee that will include ecosystem service valuation. Several councils have also cooperated with universities in ecosystem service mapping and valuation exercises, incorporating this into planning approaches.

One current example is the University of Northampton’s Nene valley project, which identified, mapped and valued natural capital and ecosystem services along the river, and has been embedded in the recently adopted North Northamptonshire Joint Core Strategy. North Northamptonshire Joint Planning Unit and the university are currently formulating a guide to ecosystem services for planners and developers, and service valuation should have a key policy role in the near future.

Final thoughts

Climate change forces us to make decisions that relate not only to the ethics of conserving nature but also to our desire to fund and enable the survival of future generations. In January, the government accepted the conclusions of its official advisers, the Committee on Climate Change, which stated that the UK was poorly prepared for climate change. One of the key six areas of risk was the threat to natural capital and ecosystems. Combatting this threat was identified as an urgent priority; such robust conclusions should not be ignored by those with influence.

Valuing ecosystem services is a major challenge. While it is relatively simple to put a figure on provisioning elements such as fish stocks or fuel as direct market value can be assigned, valuing the ability to take a walk in a woodland is very subjective. Valuation alone does not therefore provide sufficient basis for fully informed decisions. Nevertheless, it has potential to help planning decisions and should be used more frequently by those across the property sector.

Morgan Taylor is a Principal Consultant at the consultancy Greengage and Lisa Lange is Consultant at Greengage

Further information