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 / Winter 2009 / Issue 57(originally published by Booz & Company)


The Thought Leader Interview: Gretchen Daily

A leading proponent of natural capital valuation says we can build long-term prosperity by assigning prices to the ecosystems next door.

The decline of ecological diversity is often seen as an environmental issue, but it’s also a business problem. Consider the case of Hawaii, where more than half of the bird species and a significant number of plant species have become extinct or endangered during the last 100 years. Among the endangered trees is the koa, a hardwood prized for its hue and grain, which has receded as cattle ranching has expanded. A healthy koa forest has value beyond the furniture and flooring harvested from it. It draws moisture out of the air, replenishing groundwater. It can help limit the spread of fires, flooding, and reef-smothering sediments. It provides a carbon sink, a natural absorber of greenhouse gases from the atmosphere. The koa can also serve as an anchor species: If more lush koa forests were restored, other endangered species would return to those habitats, including indigenous birds (`akiapola`au, `i`iwi, and `oma`o) that spread seeds and pollen and thus enable further ecosystem growth. Moreover, trees like the koa represent a major part of Hawaii’s natural beauty and culture, on which its distinctive tourism and recreation industries depend.

When all these current and potential benefits are factored in, it could be argued that the original native forest would be of far more business value than a landscape dominated by cattle ranches, which are vulnerable to the price of their single agricultural commodity. But many ecosystem benefits are traditionally seen as externalities; businesses don’t directly pay the hidden costs of a destroyed forest. And whereas ranching pays off only in more immediate and tangible ways, the value of a natural ecosystem pays off over the long term. How, then, can a business community come to realize its value?

Answering that question is at the center of Gretchen Daily’s work. At Stanford University, she is the Bing Professor in Environmental Science in the department of biology, a senior fellow at the Woods Institute for the Environment, and director of the Center for Conservation Biology. She is also known for her book The New Economy of Nature: The Quest to Make Conservation Profitable, coauthored with journalist Katherine Ellison (Island Press, 2002). In 2006, she cofounded the Natural Capital Project, a joint venture between Stanford and the two largest conservation organizations in the world, the Nature Conservancy and World Wildlife Fund. The project’s purpose is to develop methods for measuring the economic value of natural ecosystems, and to integrate this value into the decisions of communities, governments, and businesses.

This endeavor has cast Daily in the role of a Jane Appleseed of ecosystem protection and renewal. She works with groups in China, Costa Rica, the U.S., and Europe to develop forms of land use that enhance both environmental quality and sustained economic growth. In Costa Rica, for example, Daily led a group that discovered that coffee plants located near fully diverse rain forests were 20 percent more productive, and yielded higher-quality beans, than plants farther away. As reported in the Proceedings of the National Academy of Sciences, this was a direct result of pollination by the rain forests’ indigenous bees — whose services increased by US$60,000 the annual income to a single farm, without the farmer knowing it.

Daily sat down with strategy+business in July after her panel presentation (with biologist David Tilman) at the 2009 Aspen Ideas Festival, an annual event held by the Aspen Institute in Colorado. We followed up by phone in August so that she could comment on more recent developments in China and elsewhere. The decline of species and ecosystems is a grave and underreported issue with enormous economic consequences; businesspeople, however, may be equally interested in the broader challenge of externalities. How can we put a price on resources we share, such as goodwill, common knowledge, and the environment — resources over which we have only partial control, for which we have incomplete accountability, and yet which we cannot take for granted? Gretchen Daily’s work (and that of her many colleagues) begins to show a path out of this thicket.

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