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The Contribution of Natural Capital to Sustainable Development

Conservation International urges all stakeholders to ensure that the outcomes of the Rio+20 Conference:

I. Are based on the understanding that natural capital, comprised of ecosystem goods and services and biodiversity, underpins human well-being and is therefore the centerpiece of a healthy, sustainable economy and a critical element for the achievement of sustainable development objectives.

II. Recognize that effective governance of natural capital through the collaboration of the public and private sectors, civil society and local communities is vital to achieving sustainable development.

III. Incorporate environmental values that natural capital provides into economic models in order to move towards sustainable development.

IV. Support the necessary investments for a transformation to a sustainable economy, including traditional and innovative public financing, positive incentives, private investments and market mechanisms that ensure sustainable use and conservation of natural capital.

Synopsis: Recognition of the value of natural capital will underpin the success of outcomes from Rio+20, addressing both conference themes: ?green economy in the context of poverty eradication and sustainable development? and the ?institutional framework for sustainable development?.

Since the first ?Rio? meeting of the UN Conference on Environment and Development in 1992, the human alteration of marine, freshwater and terrestrial ecosystems has continued to accelerate at a more intense pace than in any other period of human history. This use of ecosystems has led to gains in physical and human capital, while simultaneously depleting natural capital, composed of the stock of ecosystems that yield flows of ecosystem goods and services. These gains are unsustainable as they do not take into account the limits to ecosystem change and degradation, which will eventually cause declines in physical and human capital as well. Despite increasing understanding and demonstration of the value of ecosystem services, which has been estimated to have an economic value in the range of trillions of dollars annually, almost 60% of these services have been degraded or are used unsustainably, affecting climate regulation, sources and flows of freshwater, food security, human health and biodiversity. These impacts disproportionately affect the well-being of the most vulnerable among us. Over 800 million smallholders, who collectively support up to two billion people and produce half of the world's food, are directly dependent on the healthy functioning of their local ecosystems to support local agriculture and the provision of other goods including water, food, medicines, building materials and fuel. To ensure that the use of natural capital in the pursuit of development does not incur negative consequences for human well-being, sustainable development must integrate ecosystem management into economic, social and environmental planning, investment and implementation.

The outcomes of Rio+20 should specify actions to improve the current state of management and governance of natural capital, from the local to the international level, through effective, multi-stakeholder engagement. It is only with intact and resilient natural ecosystems and ecological processes ? consisting of all necessary component species and communities ? that we can ensure long-term, sustained ecosystem functioning and delivery of goods and services to support human well-being. Additionally, the outcomes should outline measures to address the fundamental failures of the current economic system and associated institutions to recognize and value natural resources appropriately. Outcomes should also make a clear and robust case for strengthening the enabling conditions needed to achieve healthy ecosystems, economies resilient to global change and sustainable development, key among these being diverse and stable financing including traditional and innovative sources of public finance, private investment and market mechanisms.

Conservation International urges all stakeholders to ensure that the outcomes of the Rio+20 Conference:

I. Are based on the understanding that natural capital, comprised of ecosystem goods and services and biodiversity, underpins human well-being and is therefore the centerpiece of a healthy, sustainable economy and a critical element for the achievement of sustainable development objectives. A green and blue economy is a healthy, sustainable economy that helps to reach the objectives of poverty alleviation and sustainable development. While a healthy, sustainable economy implies an overall economic transformation, this transformation should be implemented as a combination of multiple, coordinated mechanisms at multiple scales, from the local to the national and global level. Governments should utilize the combination of mechanisms most relevant to their national circumstances that best contribute to human well-being, environmental conservation and economic security. All mechanisms developed should recognize natural capital as essential to human well-being and thus an integral element of sustainable development.

II. Recognize that the effective governance of natural capital through the collaboration of the public and private sectors, civil society and local communities is vital to achieving sustainable development. Effective management of natural capital is vital to achieving healthy, sustainable economies at all scales. The need for governance to ensure the maintenance and sustainable use of natural resources is especially acute for low-income countries. According to the World Bank, close to one-third of the wealth of low-income countries comes from their ?natural capital? which includes forests, protected areas, agricultural lands, energy and minerals. Countries that manage these natural assets carefully are able to move up the development ladder ? investing more and more in manufactured capital, infrastructure and ?intangible capital? like human skills and education, strong institutions, innovation and new technologies. For example, between 1995 and 2005 Botswana increased its per capita wealth by 35 percent, in part through good governance and sound management of its mineral wealth. While some countries have also been able to make advancements in development through the destruction and degradation of natural capital, these advancements are unsustainable as countries will reach a critical threshold at which decreases in natural capital will cause economic decline. To avoid reaching this tipping point, the sustainable and inclusive management of natural capital is an essential element in the achievement of sustainable development and poverty alleviation objectives.

- Include multi-level stakeholder participation in natural capital governance frameworks. Effective governance requires deep, inclusive political and social dialogues driving structural transformations in public sector institutional frameworks. However, the responsibility for success should not fully rest on national or local governments, but involve the participation of the private sector, civil society and communities. Sustainable development must also be equitable development, including women, the poor and other marginalized people. Poor, resource-dependent populations are often located in the areas of greatest natural capital richness and have critical information on how to best manage those resources. To be successful, the involvement of all relevant stakeholders in natural capital governance and fair benefit-sharing schemes is therefore essential. The tripling of Madagascar's protected area network in part through local, civil society and private sector efforts demonstrates that significant progress can be made through multiple channels.

- Support the creation and maintenance of effective ecosystem-based management and protected area systems. Terrestrial, inland water and marine protected area systems worldwide serve to ensure the provision of a range of ecosystem services. The results of The Economics of Ecosystems and Biodiversity (TEEB) study, along with many other studies and field experiences, indicate that the local and global benefits of conservation are clear. Areas under protection help to conserve ecosystem-service benefits worth more than 100 times their cost, with national-level benefits being 50 times the cost. Fulfilling the Aichi Biodiversity Targets based on this understanding should be a central element of global and regional development efforts, in part through coordinated landscape and seascape management. The Pacific Oceanscape Framework endorsed by the 2011 Pacific Island Leaders Forum as a model for ?the international community to work towards integrated oceans management, with the aim of realizing relevant international goals to contribute to the health and vitality of the ocean environment, including through the global network of marine protected areas agreed at Rio+10? could contribute to these efforts.

- Endorse advancements in integrated landscape planning to best make informed landu-use decisions. Advancements in spatial planning now enable better understanding of Trade-offs and synergies which clearly reveal the value of maintaining natural capital. Integrated landscape planning represents an important tool for basing land-use decisions on robust economic and ecological data given multiple development needs from limited land resources and can often contribute to maintaining natural capital as a component of sustainable development. In the case of reducing emissions from deforestation and forest degradation (REDD+) efforts, spatial planning can identify the areas of land best suited for REDD+ activities by locating key areas for carbon sequestration that also deliver high biodiversity and other social and environmental benefits.

- Promote a system of integrated metrics and indicators. Although large amounts of data are currently collected, there remain significant gaps that hinder the integrated policy making required to progress towards a healthy, sustainable economy. In particular, co-located, integrated data on human well-being, natural capital and ecosystem services and development policies and actions, at appropriate scales, are needed to enable evaluation of tradeoffs and synergies. A portfolio of integrated metrics and indicators that are traceable back to underlying quantitative data is needed to synthesize complex information and effectively communicate the information that is important to policymakers.

III. Incorporate environmental values into economic models in order to move towards sustainable development. The continuing degradation of natural capital is the result of a variety of drivers that impact terrestrial, freshwater and marine biodiversity as well as the underlying failure of our social and economic systems to ascribe values to ecosystem services that accurately reflect their contribution to human well-being. The value of ecosystem services and biodiversity must be considered in planning processes and decision making at all scales, including in the development of strategies for poverty reduction and human development.

- Consider existing research and further explore the social and economic valuation of ecosystem services in comprehensive wealth calculations and national accounting systems. The Economics of Ecosystems and Biodiversity (TEEB) effort points to the general agreement among scientists that the inclusion of the value of natural capital in stock of wealth calculations is a ?more meaningful and correct approach? than traditional GDP or income calculations which treat most ecosystem impacts as ?externalities.? It is also estimated that in some cases ecosystem services and other non-marketed goods make up to almost 90 percent of the ?total source of livelihood of the poor? while in national GDP calculations as little as 6 percent is represented by agriculture, forestry and fisheries. The report emphasizes a tiered approach to put sustainable development into practice by recognizing the value of ecosystem services to human communities, demonstrating such values in economic terms, and protecting these values with appropriate mechanisms and tools. The TEEB report also identifies priority geographic areas to implement these efforts, specifically in terms of communication, valuation, measurements and management, poverty reduction, financial accounting disclosure, use of economic incentives, ecosystems conservation and restoration.

- Integrate information on the value and contribution of ecosystem services into economic accounting systems. Lack of assessment and estimation of the magnitude of the contribution of natural capital to national economies results in the exclusion of nature‟s value from policy analysis and precludes the development of management alternatives that recognize the importance of ecosystem services to human well-being. Countries should integrate these values into their macro-economic assessments in order to fully recognize the contributions of ecosystems to sustainable development. One proposed approach to overcome this significant limitation of information and move toward better, more efficient decision-making and planning is the integration of ecosystem service values into income accounts. A recently launched World Bank-led initiative, Wealth Accounting and the Valuation of Ecosystem Services (WAVES), is an important step towards that change. The initiative, whose primary goal is promoting sustainable development worldwide through the implementation of comprehensive wealth accounting, focuses on the value of natural capital and integration of 'green accounting' in more conventional development planning analysis.

Address drivers of ecosystem degradation. The drivers of loss of natural capital are either constant or intensifying, bringing us closer to critical ecological limits that pose fundamental costs to economies and undermine human well-being. It is therefore necessary to recognize and address the primary drivers: unsustainable practices in sectors such as agriculture or coastal development, overfishing, pollution, invasive species, climate change and the underlying factors of overconsumption and unrecognized values of ecosystems. Governments should address drivers of ecosystem degradation in their economic planning processes and through additional regulations and incentives. Standards and certification schemes (such as the FSC or MSC) can also provide incentives for the private sector to improve practices and help consumers make informed choices. The private sector can also show leadership by voluntarily adopting efforts to ?green? their supply chains, making sure at every step in the production and sourcing cycle that their products and services do not contribute to ecosystem degradation.

IV. Support the necessary investments for a transformation to a sustainable economy, including traditional and innovative public financing, positive incentives, private investments and market mechanisms that ensure the sustainability of natural capital. For sustainable development to be fully achieved, it is necessary that developed countries meet their traditional official development assistance (ODA) objectives. However, in addition to ODA, innovative sources of financing such as transportation levies and new taxation mechanisms should be explored, as these can reduce the impact of sometimes unpredictable public sources of finance. The necessary investments for a sustainable transition to a sustainable economy should include a combination of traditional and innovative public financing, positive incentives, private investments and market mechanisms which ensure measures to conserve and sustainably use natural capital. Creating positive incentive structures, such as payment for ecosystem services schemes, REDD+ and global markets for services, and eliminating negative economic incentives (perverse incentives) for overharvest, pollution, logging, land-use changes or other unsustainable forms of natural capital use and management is a necessary change that will facilitate the recognition and valuation of natural capital by society.

- Expand the role of payment for ecosystem services schemes. Payments for ecosystem services (PES) are mechanisms designed to provide an incentive against degradation and unsustainable use of natural capital by compensating communities and countries for actions associated with restoring, enhancing or protecting natural systems and the ecosystem services they provide. CI has been involved in successful PES projects at the community level, including REDD+ national strategy development in Indonesia, Peru, and Madagascar, a water payment scheme in Colombia, as well as national PES schemes in Costa Rica, Mexico, and Ecuador, all of which have led to increased conservation of ecosystem services and supported sustainable development. For example, by compensating land owners for providing ecosystem services through reforestation, sustainable management, preservation and regeneration activities, Costa Rica´s PES scheme is currently protecting close to 10 percent of the national territory.

- Utilize Conservation Trust Funds for sustainable, long-term financing of biodiversity and its related environmental services. Conservation Trust Funds (CTFs) and similar longterm financial mechanisms can serve as an effective means for mobilizing strategic investment funds for biodiversity conservation, capitalized by international donors, national governments and the private sector at both the national and international levels. They facilitate long-term planning in part because they involve multi-stakeholder governance and are independent of changes in government and shifts in political priorities. To the extent that national and international markets are not able to fully reflect ecosystem values to guarantee their long-term conservation, financial mechanisms such as trust funds are among the only feasible mechanisms to provide for ecosystems' preservation. Engagement of civil society, private sector, governments and international instituions in joint partnerships are essential to guarantee the success of these mechanisms.

- Eliminate and redirect perverse incentives that finance and legitimize ecosystem degradation. Perverse incentives, or policies and practices that encourage unsustainable behavior, are often the unanticipated side-effects of policies created to achieve other objectives. For example, high subsidies for industrial fishing fleets have encouraged overfishing and resulted in fisheries losing billions of dollars due to huge reductions of the global catch. Incentives which are harmful to natural capital must be eliminated, phased out or reformed in order to avoid negative impacts. In fact, there are often opportunities to redirect harmful subsidies to provide positive incentives for the conservation and sustainable use of natural capital. Opportunities to develop and apply positive incentives should be explored and pursued. Such incentives serve as a valuable tool to ensure that natural capital considerations are reflected in all relevant economic sectors.