15 Sep 2021
Program Director of KEHATI Foundation
The earth had experienced mass extinction five times, millions of years ago. The main cause was natural factors, such as meteor shower, massive floods, plate movements, earthquakes, and so on.
Currently the earth is predicted to be in the middle of the sixth mass extinction process. In 2019, IPBES (The Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services) reported that more than one million of the earth’s species were in danger of being extinct. What’s different than the previous five mass extinctions, this sixth one is caused by the human factor.
IPBES (2019) also identified several direct causes of species extinction, namely land use change, direct exploitation, climate change, pollution, and invasion from foreign species. In short, it can be said that species extinction is caused by economic activities.
Therefore, economic approach is key in analyzing both the cause and solution to prevent the acceleration of mass extinction. Economic approach is fundamental in managing biodiversity, because basically it is not the biodiversity that is being managed, but the humans as economic creatures with the capability of carrying out a large scale exploitation.
One of the economic theories often referred to by policymakers is the Environmental Kuznets Curve, namely the inverted U-shaped curve in which the horizontal line shows income per capita and the vertical line is the environmental damage.
This curve was initially used by economist Simon Kuznet in the 1950s to examine the relationship between income per capita and income gap. In the 1990s, the Kuznet Curve was used by Grossman and Krueger to study the relationship between the economy and various environmental indicators, including carbon dioxide emission, the Kuznet Curve gained more popularity when the World Bank issued its 1992 World Development Report, which mentioned the applications of the Kuznet Curve.
The Kuznet Curve explains that income per capita initially will increase as environmental damage increases, until it hits a turning point. Afterwards, environmental damage experiences improvements as income per capita increases. It means that this theory emphasizes that environmental damage is inevitable in economic development, thus the policy option is economy first, while environmental damage is handled later.
In fact, there are still many questions and debates regarding this Kuznet theory, such as in what level of income per capita does the turning point happen? How long until the turning point is reached? How severe is the environmental damage up to the turning point? After reaching the turning point, does environmental improvements occur automatically? And many other critical questions.
Although debates are still being exchanged at the concept level, the Kuznet theory has been widely implemented in many countries. One of its impact, as mentioned at the beginning, is the threat of the sixth mass extinction.
The new global study on the impact of economic policies that prioritize the economy and ignore the environmental aspect was carried out by an economist from Cambridge University, Prof. Partha Dasgupta. In early 2021, Dasgupta published his study entitled The Economics of Biodiversity: The Dasgupta Review or more commonly known as The Dasgupta Review.
Dasgupta Review is considered a historical milestone in biodiversity economics, and has been discussed in various global forum since it was published. According to Dasgupta, nowadays, damages to the biosphere have reached the demand point for goods and services far exceeding the biosphere’s capacity to sustainably meet these demands. Mathematically, the ecological footprint has far exceeded the biosphere regeneration rate. This ecological footprint does not only come from the excavation of natural resources, but also from production and consumption waste thrown into the environment.
This study result is a warning that the sustainable development concept agreed by global leaders in 1992 must be implemented in a pure and consequent manner. This concept emphasized that economic development to meet the needs of today’s generation must not sacrifice the economic fulfilment for future generations.
Global leaders must also agree on the Millenium Development Goals (MDGs) program, with its eight goals, which is continued with the Sustainable Development Goals (SDGs), consisting of 17 goals. In addition, there is also the Paris Climate Agreement to ensure that economic development in all countries does not exceed the global greenhouse gas emission target.
In addition to agreements from the world’s leaders, global businesses have also made agreements to preserve the balance between financial profit and environmental conservation.
There are at least two important agreements in the business world, namely the Equator Principles for financial institutions (mostly banks) and the Principles for Responsible Investment (PRI) for investment institutions. Both of these agreements’ commitment is based on the implementation of Environmental, Social, and Government (ESG) principles.
The Equator Principles were initiated by the International Finance Corporation (IFC) in 2003. Initially, there were only 10 financial institutions adopting the Equator Principles, but as time went by, the number increased until it has reached 118 financial institutions in 2021.
Meanwhile, PRI was initiated by the UN Secretary General Kofi Anan in 2006. The number of investment institutions committed to implement PRI (signatories) significantly increased from 20 institutions in 2005 to 3,000 in 2020. PRI’s Asset under Management (AUM) also sharply rose, from only USD 3 trillion in 2006 to USD 100 trillion in 2020. This is a strong signal that the ‘green investment’ trend is happening globally.
Another important factor in the growth of green investment is millennial investors, who inherited riches of USD 30 trillion. A survey conducted by Morgan Stanley in 2017 shows that 86 percent of millennial investors are interested in sustainable investments, which not only yield financial profit, but also provide a positive social and environmental impact. This survey also states that 75 percent of millennial investors believe that their investment can affect climate change and 84 percent believe that they can reduce poverty.
The green investment trend indicates that the business world is playing an important role in addressing environmental issues. Several major corporations have proven their serious intention in implementing ESG principles, but some are still playing with greenwashing, namely making the environmental issue as a marketing sensation by making false claims to generate profit from the popular sustainability trend.
According to Michael Porter (2013), a management expert from Harvard University, the old paradigm that states business can generate profit by damaging the environment must be changed to a new paradigm, namely business can generate profit by improving the environment. In order for this new paradigm to come true, two things need to be done. First, changing the business world’s way of thinking in looking at itself, and second, changing the way of thinking of non-business world to the business world.
In summary, there needs to be collaboration between stakeholders and the business world in restoring planet Earth. Because there is no Planet B.