“It’s the economy, stupid.” Sacrificing nature for wealth destroys both

In 2020 the World Economic Forum published a much quoted report stating over half the world’s GDP, or US$44 trillion, was moderately or highly dependent on nature and its ecosystem services. In 2023 PWC updated the findings with a new figure of US$58 trillion. Nature has an enormous intrinsic value that cannot be reduced to dollar figures. But even in economic terms, nature isn’t an ornamental luxury – it’s a key engine of our entire global economy.

Darren Mckenzie

Senior Communications Lead, Global Canopy

National economies and the global financial system are accustomed to looking at a narrow interpretation of the bottom line. Growth is seen as essential and in the traditional accounting lens, the needs of nature are irrelevant to that growth: deforested land is deemed to be worth more than intact forests and grasslands are assigned more value as pasture. But the sacrifice of nature in search of profit is at odds with a more complete and scientifically informed understanding of the economy. Environmental destruction is impacting vital ecosystem services leading to more droughts, worse flooding, an increase in wildfires – all of which will hit that bottom line.

Deforestation and drought

Deforestation is a case in point. Forests are cleared to free up land for the production of agricultural commodities. But rainforests create rain – it’s in the name. Among many other effects, destroying them causes and exacerbates drought. And this directly impacts the crops that forests are cleared for.

In November the Rainforest Foundation Norway [RFN] found that in the Amazon basin areas where more than 80% of the forest has been cleared, the start of the rainy season has been delayed by 76 days since 1980. Between 1999 and 2019, rainfall in these same areas fell by 40% in the soyabean-cropping season.

Another report by NGO Fundacion Tierra found that, at a local level, changes in temperature and rainfall over recent years are more pronounced in deforested areas than those which remained forested. 

The impact of this is becoming dismayingly clear. Droughts in Latin America occur more often and are more extreme than ever. In 2023, Bolivia experienced the longest dry period in its history. In 2024 the droughts in Brazil were the worst since records began, jeopardising coffee and sugar as well as the soy crop. Scientists estimate that climate-driven changes to rainfall may negatively impact 51% of agricultural land in the Amazon and Cerrado by 2030.

In Bolivia – as discussed in this Trase article – by the end of June 2024 the year’s main harvest was down 24% compared to the previous three year average, and soy exports in the first half of that year were also down by more than 30% in volume compared to the same period in 2023. The RFN report shows that the practice of clear-cutting (removing all trees from a given area) in the Brazilian Amazon has led to reduced crop yields.

A risk to the finance sector

This climactic disruption directly affects farmers and agri-business. But it also impacts the finance sector through its loans and investments. In recent years the ENCORE platform has been used by Central Banks around the world to look at their dependence on nature. In 2022 the Bank of England found 72% of UK lending was dependent on various ecosystem services. The next year the European Central Bank determined that almost  75% of corporate bank loans in the Euro area were granted to non-financial corporations with a high dependency on at least one ecosystem service. If those ecosystem services are disrupted, there are financial impacts.

“Loss and degradation of ecosystem services can lead to substantial disruption of business processes and financial losses.”

Nature-Related Financial Risks in Brazil – World Bank Group

In a separate study, researchers estimated the soy sector in the Brazilian Amazon and Cerrado is set to lose up to US$250 per hectare per year by 2050 as a result of both global climate change and an increase in heat extremes as a consequence of deforestation.

Last year the Green Finance Institute found that damage to the natural environment is slowing the UK economy, and could lead to an estimated 12% reduction to GDP in the years ahead – larger than the economic disruption caused by the global financial crisis or Covid-19. And yet we continue to separate or remove consideration of impacts on nature from corporate and financial decisions. This is a colossal act of self-harm.

In his letter detailing his priorities for COP30 in the Brazilian Amazon, COP President André Corrêa do Lago stated “Change is inevitable – either by choice or by catastrophe.” We have the chance to make better choices. For companies in the food system, this means taking a longer view rather than relying on land clearance. For the finance sector, allowing deforestation to be part of financial portfolios likewise undermines future returns. Keeping forests standing is the right choice for both the planet and the global economy.