Financialisation of Nature

Tone Smith

No 08/2021, SRE-Discussion Papers from WU Vienna University of Economics and Business

Abstract: The ‘financialisation of nature’ is related to a shift in environmental governance—from regulation to marked-based approaches—involving strong state support to facilitate the establishment of ‘innovative financial instruments’ and markets related to nature. Although innovative finance got a bad reputation after the 2008 financial crisis, they are strongly encouraged in the environmental policy domain and supported by actors such as UNEP or the CBD. This paper explains the theoretical underpinning and the process of establishing such financial instruments, focusing in particular on offsetting and related ideas such as ‘net-zero’ calculations and ‘nature-based solutions’. It explains how natural entities are converted into abstract units of equivalence to allow the establishment of schemes for tradable ‘nature credits’ (supposedly) compensating damage across time and space. The financialisation of nature is then analysed and critiqued with respect to its lack of environmental effectiveness, its problematic socio-economic consequences and its impact on human-nature relationships. Instead of dealing with the environmental problems at hand, the conversion of nature into financial assets simply turns nature into objects of investment and speculation, while simultaneously creating a potential for financial bubbles.

Keywords: environmental governance; innovative financial instruments; natural capital; offsetting; biodiversity banking; mitigation hierarchy; net zero; nature-based solutions; restoration of nature (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-env, nep-hme and nep-isf
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