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Talking Headways

Talking Headways Podcast: Pricing the Priceless

We chat about how nature is working for us for free and how we should value those services, as well as the financial mechanisms we could use to save the planet.

This week we’re joined by Paula DiPerna to talk about her book Pricing the Priceless: The Financial Transformation to Value the Planet, Solve the Climate Crisis, and Protect Our Most Precious Assets.

We chat about how nature is working for us for free and how we should value those services as well as the financial mechanisms we could use to save the planet. She also shares how she got the Vatican to pledge to go net zero and lessons from working with Jacques Cousteau.

Jeff Wood: In reading the book, every chapter has a specific target and I think it was just fascinating to look at all these mechanisms that could be used to maybe fix the issues that we're dealing with. And so there's rhino bonds, reef insurance, carbon trading, art in a box that explained some of this stuff. Forest bonds and all these are clever financial instruments to try to measure future value and to a certain extent this ecosystem services. I'm wondering though that it's, it's still trying to measure something that's priceless and I think that that's, as you point out in the book, that's really difficult to do. I'm wondering if you worry these mechanisms are too complicated because of how complicated understanding interconnected ecosystems actually is.

Paula DiPerna: No, because although everything is interconnected, the way to address preserving the interconnectedness is to sort of disaggregate in a way, and this is what's the fascinating part. On some level you have to understand environmental issues as ultimately completely integrated and everything is connected. However, that is out of alignment with the way our systems work and the way the physics of the problem work. You know, there's sectors and even though, you know, what are the, people call them silos now, everything is siloed and we keep trying to connect the silos, but you can only go so far with connection before you can't implement and you know, like, take a city — a city has to run. It's all well and good to talk about recycling, but at the end of the day, somebody has to pick up the recyclables.

That's a driver, that's a vehicle, that's, you know, segmented function. Nature has segmented functions. And what we're pricing really are those functions, those benefits that accrue from nature's work. So I'm not saying nature is worth x, I'm saying the benefits that nature provides can be quantified and the ultimate result is pricelessness. But you can break it down into quantifiable numbers. And so for example, back to using tools that everyone's familiar with, and I mean by that everyone who, you know, manages money, regulates banks and so on. Profit and loss statement, even I don't have a big company, but I know my red ink and my black ink.

And so Puma, everybody I think, recognizes that brand, its sneakers and sportswear. The company was run at it for a certain time by quite visionary guy named Jochen Zeitz, who among other things, endowed a contemporary art museum in Cape Town. I met him in New York a number of years ago and I could tell that he had something going, he was talking about this environmental profit and loss statement that he was trying to develop for his company. And he did it. And it was in exactly the format of a normal profit and loss that you would report to your shareholders or to your, your securities regulators.

His team environmental consulting firm at that time called Sustainalytics, a guy named Richard Madison, who was still very active in this and was kind of ahead of his time on these things, to figure out if they had to pay for the emissions that they emitted in the production of their products in a carbon market based on X price. And they used an average price at the time in the European Union system.

They figured out, okay, if they had to pay, what would be the value of the land if they were paying for the use of land of the animals that were grazing, who provided the leather, let's say, what would that be? What's the disposal charges? What would the water be? So they started adding all the inputs as if they would've had to pay for them if they had been controlled in some way. And he called that, you know, negative profit — that would've been what they would owe nature. That was almost 145, I think it was 145 [million] euro. So if they had been paying actually the real costs to nature for the input that they needed and the impacts they were having, negative impacts, their profit — $200 million — would've been significantly reduced.

And at which point the company would be exposed as kind of falsely subsidized and you know, the shareholders would've freaked out. I mean, what happened to your profit? Oh my goodness, we owe that to nature. Well what, what does that mean? So, you know, if every company did that, even if it was just as an educational tool for the company, eyes would open and waste would be reduced. I mean waste is one of our biggest problems, you know, we go after everything else but waste we're not really focused on. And that would be, you know, energy efficiency. There's, you can never have enough. Cities are for example, great places to really get to a hundred percent efficiency.

But we don't because it's so difficult to retrofit and reorganize cities. But in theory, cities should be the most efficient places on earth to live in terms of certainly energy use.

Jeff Wood: I think that's a really fascinating idea, making land kind of understood as an asset, as capital, not something that's just raw material and extracted. And I think you mentioned this in the book, but I think that that's a really important distinction and how you can actually price some of these quote unquote externalities that businesses might see and actually, you know, give a way to, you know, value these places.

Paula DiPerna: Yeah, I mean I think it's a simple switch from, you know, infrastructure. Nature is an indispensable bit of infrastructure. If you total up all the contributions it makes to the world economy, the range of estimates is a low ball of $44 trillion per year and a high ball, that I know of, of $125 trillion a year, which is more, if you consider the today's GDP for the world, around $110 trillion a year, nature is at least worth, is at least responsible, for half or comparable in value to half of that. So it can't just be that these are raw materials because raw materials get exhausted.

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