More to a forest than money

2nd March 2018

Angus Middleton argues that putting a price on natural capital is not the pinnacle of achievement, but simply a step in the right direction

The financial valuation of nature seems to have been something of a holy grail over the past few years. Vast effort has been expended to put a figure on the ecosystem services that habitats provide, from which a capital value can be entered on an accounting balance sheet. I applaud this as it has brought the ecosystem approach into boardroom consciousness. It is helping shape good policy. But the time has come to move beyond this and onto the next incarnation of valuation, one that will flow naturally into management planning tools.

The root of the current problem is with the high degree of approximations, assumptions and omissions required to put a financial value on ecosystem services. Take recreation as an example. There are many ways to value how people use a forest, for instance, but common examples are through the cost of getting there or simply asking them. This does not capture how many alternative recreational options the people have, the potential of the forest to reduce deprivation outcomes (perhaps by improving access), how the forest affects other local green areas and a myriad of other pertinent concerns. It also means that recreation cannot be compared with other ecosystem services that have no financial valuation, such as the forest’s biodiversity offering.

There is a solution. The first step is to realise that financial valuation is not the pinnacle of achievement, but simply a step in the right direction. Every ecosystem service should be valued financially, where sensible to do so, but as much effort should be expended in creating a range of biophysical quantification and qualification metrics as well. This will allow a far more nuanced approach to including non-financial considerations, as well as permit comparison between all ecosystem services.

Let’s illustrate this with the forest again. There are certain ecosystem services that can be quantified financially, such as recreation, timber supply and carbon sequestration. These should therefore be accounted for financially, but these figures will not give the whole picture, so they should be enhanced through additional biophysical quantification. For recreation, this could include distance to surrounding communities and their deprivation statistics, or the number and size of other accessible land units within certain distances from the forest. This information is expressed as a number, which is then blended with the financial valuation to give a unitless but quantified output. This adds context and meaning to the financial value, in a way that produces exact numbers.

In our forest example, there is no useful, equivalent biophysical quantification for timber production and carbon sequestration (ones that cannot be financially valued), so there is no comparison across these metrics. The assessment does not stop here, though, as all these ecosystem services can be qualified in a detailed way. Looking at recreation again, this could include the number and importance of rights of way extending beyond the forest, or the happiness ratings of people from using the forest. Every occurrence or reply at this stage is ranked from highest to lowest, using criteria based on expert opinion or experience. In the same way, the financial and biophysical values are ‘translated’ into the highest to lowest rankings, and added into the mix.

The aspects are then weighted for their relative importance to each other: if happiness is more important that financial gain, the happiness value would be more dominant in the overall, qualitative valuation of recreation. In table 1 below, these values are expressed as a number between 1 and 10.

Table 1: Example of value comparison grid for ecosystem services

The qualification means that there can be a direct comparison between many services that use differing modelling outputs, expert opinion or local knowledge. The results also incorporate the qualitative and financial evaluations, for those services where these exist, but ‘levelled-down’ into the same qualitative mode. This ability to blend sources gives an extremely inclusive and rounded quality to the rankings at this stage.

The next level down is a simpler high-medium-low (RAG) rating. This allows for services where there is little information or where value is extremely objective, so comparisons can be made across all services. Again, the more precise qualitative and quantitative evaluations are blended with any new aspects to rate those services as high, medium or low, so as much of the richness of higher layers as possible is captured here.

This concept is illustrated in figure 1 below:

Figure 1: Pyramid of valuation

Natural capital accounting is an important tool and extremely effective, but is only part of a wider valuation potential. It should be blended with more inclusive methods based on judgement and priorities, as this will enfranchise stakeholder opinion and allow direct comparison between all ecosystem services. This, in turn, will improve management decision-making and engage a much wider audience.

Angus Middleton is commercial director at Viridian Logic

Image credit: iStock


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