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The environment is under threat. A global scientific assessment this year highlighted the urgent crisis in biodiversity worldwide, with natural ecosystems diminished by 47%, and many species facing imminent extinction. The IPBES report recognized that “business as usual” will not do: a system change is needed.

Yet, such change represents a threat to the profit-driven interests of the global corporate sector. For this reason, many corporations have sought ways to show that they are acting to address the environmental crisis, whilst maintaining unsustainable production methods and pursuing a model of endless, unstoppable economic growth.

Corporate tricks to avoid environmental regulation

Through a process known as Financialisation of Nature, corporations and political systems are redefining the environmental ‘problem’ into a ‘solution’ which can create even more economic profit, for their benefit.

By reframing nature as “natural capital”, they are able to assign a price to it, in function of the “ecological services” it can offer—services such as carbon storage or water filtration. Those who capture nature and its ‘services’ are able to then speculate with the prices, and compare the value of investing in nature with investing in other activities. This process reduces nature to its economic value alone, sidelining the social, cultural, political and even spiritual aspects of nature’s relationship with human societies.

Financialisation of Nature takes on a particularly deceptive form in offsetting and biodiversity compensation schemes. These schemes allow companies and governments to pursue destructive activities—such as grabbing land from indigenous peoples and local communities or cutting down part of the rainforest—and claim that no damage is being done overall, as they have compensated the price of this destruction. Compensation can be as simple as paying into a fund which promises to create or protect more nature elsewhere, or creating such an area themselves.

River Nile at the Bujagali falls

River Nile at the Bujagali falls. Image: NAPE / Friends of the Earth Uganda.

One such example is the Bujagali hydropower project in Uganda. The reservoir created by the Bujagali dam on the River Nile in 2012 flooded an area which had enormous ecological value, as well cultural and spiritual importance for the local Basoga indigenous peoples. ‘Comparably important’ waterfalls and river banks were set aside ‘in perpetuity’ as a biodiversity offset for the flooded area. However, a few years later, the offset site in turn was to be flooded for another hydropower plant—with the offset needing to be offset. On paper, any destruction has been offset, and no harm done. In reality, river banks along the Nile have been flooded, and many human right violations incurred in the process.

Policy makers buy in to tricks

A recent study by Friends of the Earth International reveals how policy makers advocate compensation and natural capital approaches as real solutions. Existing regulations based on limits and fines are increasingly turned into laws that provide offsetting and compensation options as legal solutions for environmental destruction.

Such compensation schemes are promoted in international standards—such as the World Bank’s Performance Standard—or in national environmental legislation, in both cases giving the go ahead to destructive activities by companies that promise to offset or pay a compensation fee into a national fund designed for future ecological restoration.

These schemes are an important way for both corporate actors and politicians to ‘greenwash’ their activities—to maintain business as usual while still showing they are acting for the environment.

Gains for the corporate sector

A complementary study by Friends of the Earth International shows just how much the corporate sector stands to gain when legislation allowing offsetting is put in place at the national level.

Such legislation allows the legal approval of environmentally destructive activities which would otherwise not be allowed, especially access to land in protected areas. This approval further facilitates access to finance, especially as the International Finance Corporation (linked to the World Bank) and regional development banks approve projects more easily when they include offsetting.

Montage of four images: indigenous farmer, protected land, handshake deal and extractive industry

Companies in the extractive industries use biodiversity offsetting projects to gain access to protected areas.

For example, the project to build a pipeline through Jasper National Park in Canada committed to offsetting, despite it not being a legal requirement. This commitment facilitated the licensing process and the project received approval without substantial environmental opposition.

Equally, when corporations set aside land for future developments, it can end up being more profitable for them to leave it untouched and instead ‘cash in’ on the income gained from offsetting projects.

On a wider social scale, such legislation aims to increase public acceptance for destructive activities. International conservation NGOs such as The Nature Conservancy or Flora and Fauna International offer compensation offset projects and lend corporations a positive, ‘green’ image—a well-known tactic of ‘greenwashing’.

The offsetting system relies on a huge body of research and development to keep it functional and credible: many think thanks, consultants, NGOs, academics, and accounting professionals earn their living thanks to Financialization of Nature processes. These actors will actively push to continue developing them, even as evidence of the ecological harm of these approaches mounts.

Combatting Financialisation of Nature

It is fundamental that the environment, and those depending on and caring for it, are at the forefront of environmental management and related legislation. Indigenous peoples and local communities are the best guardians of ecosystems: it is proven that areas where they organize territorial conservation using locally-relevant techniques are conserved better than national parks and private protected areas. 

We need strict legislation to counteract deregulation, and ensure protection for the defenders of territories and human rights, who too frequently face persecution. We need a binding treaty for corporations on human rights. We need a system change: reforming our economy to make sure that the needs of all are covered in a fair and community-based manner, while stopping the greed of the few.