Explore the resources below to assist in completing this action.
Biodiversity Guidance action 3.2.5
3.2.5 Decide which types of value you will consider
The Protocol outlines how valuation involves a continuum of qualitative, quantitative, and monetary approaches, and describes key features of each approach. It also suggests key considerations when determining which type of valuation is most appropriate to meet your objectives. Valuing natural capital often involves valuing the final benefits that people/businesses receive from natural capital. If biodiversity contributes to these final benefits, but is not explicitly considered as part of them, its contribution or necessity may not be visible in your assessment. It is important to assess how identified benefits rely on the underlying biodiversity stock, and ensure the ramifications for maintaining the condition of biodiversity are considered alongside valuation results. If biodiversity is not visible or not captured in your valuation process, its importance can be underappreciated. Your organization will not have a full picture of how risks and opportunities can manifest and may therefore make decisions based on incomplete information (for more information see Framing Guidance action 1.2.1 on “Why are some of these values often underappreciated in natural capital assessments?”).
Before proceeding with your valuation, you should be aware of, and find ways to address, potential concerns that generate opposition to valuing biodiversity, especially in monetary units. Concerns may include, but will not be limited to, fears around the “commodification” of nature and the risk that bringing nature closer to the economic system will detract from societal responsibilities to protect biodiversity. You should also recognize that it is both inappropriate and impossible to accurately quantify the intrinsic worth of biodiversity in monetary units, and you should find alternative ways to consider biodiversity’s intrinsic value in your decision-making. It is important that you present the approach taken, the aspects of biodiversity’s value included, and the assumptions made clearly alongside your results. This will help to avoid a well-intended assessment from being taken out of context or otherwise misunderstood.
Monetary valuation can be used to understand the magnitude and relevance of costs and benefits associated with your impacts and dependencies on biodiversity. Monetary valuation summarizes information in a common and tractable unit, making it easier for you to communicate with key stakeholders and assess trade-offs.
Before undertaking monetary valuation however, you should consider whether this is the appropriate approach. In the following circumstances you should not use monetary techniques (adapted from TEEB 2010):
- When you cannot estimate accurate values;
- When it can be considered morally inappropriate (e.g., placing a monetary value on an intrinsically/culturally valuable area to the surrounding communities) (Synder et al. 2003);
- When a large-scale change in biodiversity is taking place (e.g., when a large proportion of a remaining population or habitat is affected);
- When an irreversible change is expected.
Other factors that you should consider when deciding whether to use a monetary technique include the nature of your decision, the target audience, and the availability of data to support conversion to monetary units. Qualitative and quantitative techniques can be applied to values that cannot be assessed with monetary techniques.
For further information about qualitative, quantitative, and monetary valuation approaches, see Measuring and Valuing Guidance action 7.2.3.
Biodiversity Guidance action 7.2.3
7.2.3 Select appropriate valuation technique(s)
You can use valuation to understand the importance of biodiversity in a particular context. A variety of approaches are available. When selecting an approach, you must understand its applicability and limitations.
Your choice of valuation technique will depend on whether you want to estimate qualitative, quantitative, or monetary values for biodiversity:
- Qualitative values inform the scale of costs and benefits in non-numerical terms.
- Quantitative values use numerical data as indicators of costs and benefits.
- Monetary values translate costs and benefits into a common currency.
Different types of values offer different ways to examine the consequences of your impacts and dependencies on biodiversity. Hybrid approaches involve using different types of value (i.e., qualitative, quantitative, and/or monetary) in combination to assist your decision-making. You may find hybrid approaches particularly helpful for ensuring that both of the following values are captured in your assessment: 1) the value of biodiversity as part of a natural capital stock underlying continued provision of benefits; 2) the value of the final benefits provided by biodiversity.
You may find it easier to measure the condition of biodiversity (as part of a natural capital stock) in biophysical units, such as the number of individuals of a species or the area of a habitat. If you wish to progress to valuation, you could then convert measurements into qualitative, quantitative, or monetary values. For example, expressing the number of individuals of a species at a site (measurement) as a proportion of the total population could give a quantitative indication of the biodiversity value of the site.
It can be challenging to place monetary values on biodiversity stocks. It is often more straightforward to apply monetary valuation techniques to the goods and services flowing from biodiversity (i.e., the value of the final benefits provided by biodiversity). For example, you could value the benefits provided by wild pollinators using market prices for crops.
Even where monetary valuation is your ultimate goal, you may only be able to convert some aspects of biodiversity’s value to monetary units. Qualitative and/or quantitative approaches can be applied to aspects of biodiversity’s value that cannot be assessed with monetary techniques. For example, you could apply qualitative approaches to spiritual values associated with biodiversity, and/or might use quantitative values to understand health benefits associated with biodiversity.
You may wish to apply a sequential approach where you first estimate values qualitatively and/or in quantitative units, and then convert them into monetary values (TEEB 2010). You can develop biodiversity values over several iterations. For example, in initial valuation analysis with limited scope you may estimate qualitative values, and then convert progressively more values to monetary units in subsequent assessments with increasing complexity and assumptions.
a. Qualitative and quantitative valuation techniques
The qualitative and quantitative valuation techniques described in the Protocol can be applied to estimating values for biodiversity (box 7.1). The advantages and disadvantages of applying different techniques to biodiversity are the same as for other aspects of natural capital. Therefore, you are encouraged to look at the Protocol for information about valuing biodiversity using qualitative or quantitative techniques. Note that while this Guidance only provides further biodiversity-specific information about monetary valuation techniques, qualitative and quantitative techniques are often more appropriate for capturing some aspects of biodiversity’s value.
Box 7.1: The UK National Ecosystem AssessmentThe United Kingdom’s National Ecosystem Assessment (UK NEA) provides an example of how non-monetary valuation techniques can be used to consider biodiversity’s value alongside monetary values. In this assessment, impacts on farmland bird species and bird diversity were valued using multi-criteria analysis (MCA; refer to the Protocol table 7.1 for more information on this and other valuation techniques). Monetary valuation techniques were applied to other impact drivers such as agricultural output, greenhouse gas emissions, as well as to recreation and urban greenspace under different scenarios (Bateman et al. 2011). The different types of value could then be considered in parallel in decision-making—this is therefore also an example of a hybrid approach.
The NEA synthesis report shows how this hybrid approach has been applied and a study by Defra (UK, Department for Environment, Food, and Rural Affairs) also highlights the difficulty of assessing cultural goods though monetary techniques alone, emphasizing the importance of recognizing their values using a range of techniques, such as MCA. The collective value of biodiversity and ecosystem services requires a hybrid approach, using both quantitative and qualitative techniques (UK NEA 2011). Businesses would be able to apply this approach to integrate both the values of biodiversity stocks and final benefits when undertaking natural capital assessments.
The United Kingdom’s National Ecosystem Assessment (UK NEA) provides an example of how non-monetary valuation techniques can be used to consider biodiversity’s value alongside monetary values. In this assessment, impacts on farmland bird species and bird diversity were valued using multi-criteria analysis (MCA; refer to the Protocol table 7.1 for more information on this and other valuation techniques). Monetary valuation techniques were applied to other impact drivers such as agricultural output, greenhouse gas emissions, as well as to recreation and urban greenspace under different scenarios (Bateman et al. 2011). The different types of value could then be considered in parallel in decision-making—this is therefore also an example of a hybrid approach.
The NEA synthesis report shows how this hybrid approach has been applied and a study by Defra (UK, Department for Environment, Food, and Rural Affairs) also highlights the difficulty of assessing cultural goods though monetary techniques alone, emphasizing the importance of recognizing their values using a range of techniques, such as MCA. The collective value of biodiversity and ecosystem services requires a hybrid approach, using both quantitative and qualitative techniques (UK NEA 2011). Businesses would be able to apply this approach to integrate both the values of biodiversity stocks and final benefits when undertaking natural capital assessments.
b. Monetary valuation techniques
Monetary valuation allows you to compare costs and benefits in a single, readily understood unit. It can simplify the assessment of trade-offs, not only incorporating biodiversity values, but also other environmental, social, and economic considerations.
The valuation techniques included in this Guidance are the same as those already included in the Protocol, but there are some additional considerations that you should take into account when selecting a technique to apply to biodiversity.
Table 7.1 in this Guidance outlines key biodiversity-specific considerations for each technique. Note that this table builds on table 7.1 in the Protocol, which should be read alongside it. Table 7.1 in the Protocol provides a description of each technique, and an indication of the data requirements, duration, budget, skills required for application, and advantages and disadvantages in the general context of natural capital.
Table 7.1 below provides you with information on the benefits and limitations of each technique in the context of biodiversity, including what type of biodiversity values it can capture and whether it captures impacts and/or dependencies on biodiversity. Table 7.1 also provides examples of how each technique can be used to estimate biodiversity values.
Refer to the Framing Guidance action 1.2.1 (B) for more information on the different types of values used in table 7.1.
Monetary valuation technique | Biodiversity considerations* | |
Market and financial prices | Benefits: Well-suited to identifying and valuing final benefits provided by biodiversity. Limitations: The extent to which the value of biodiversity is captured is heavily dependent on the degree to which variation in biodiversity influences demand for the market good. Biodiversity values: Direct, some underpinning, insurance, and options Impacts or dependencies: Both Examples of use: The market price of an agricultural output could be used to value an expected increase in crop yield associated with interventions to increase wild pollinator populations accessing a plantation. Previous studies have been used to make the case for biodiversity-positive investments to protect and increase pollinator populations given their direct potential to influence the quality and quantity of the crop that is produced. | |
Production function (change in production) | Benefits: Can be used to assess the value of complex and unclear business dependencies on biodiversity. Limitations: Requires complex modeling which may introduce a high level of uncertainty. Biodiversity values: Underpinning, insurance, and options Impacts or dependencies: Dependencies Examples of use: More diverse forests tend to absorb and store more carbon. The increase that is derived from biodiversity in the carbon value of a forest may be estimated using production function modeling. Businesses looking to invest in forests as part of their climate mitigation and adaptation strategies can use this approach to understand their options, and to seek investments which support their biodiversity and climate objectives. | |
Cost-based approaches | Replacement costs | Benefits: Reflects business costs that would be needed to maintain operations with changes in biodiversity. Can be used to look at the biodiversity underpinning flows of benefits. Limitations: Despite valuing biodiversity requiring measurement of the demand for biodiversity, cost-based methods report the costs that would be associated with a particular action with no relationship to demand. Biodiversity values: Direct, underpinning, insurance, and options Impacts or dependencies: Both Examples of use: Businesses can use these approaches to look at the costs of adhering to the mitigation hierarchy (avoid, minimize, restore, offset) as part of a financial analysis of how to mitigate their impacts on biodiversity. The costs of restoration and offsets are examples of replacement costs, and the difference between these costs and costs associated with avoidance and minimization of impacts can represent damage costs avoided. Replacement cost has also been used to highlight the costs of pollinator decline where the next best alternative is hand pollination by humans. The costs of bringing in managed pollinator populations can also be used if this is a feasible alternative. |
Damage costs avoided | ||
Revealed preference (indirect) | Hedonic pricing | Benefits: Can isolate the contribution of particular ecosystem services from biodiversity to human well-being. Limitations: A proxy-based method that may have context-dependent inaccuracies, for example hedonic pricing methods will struggle to distinguish a value of biodiversity if levels of biodiversity are not noticeably variable across the assessment area. Similarly, where there are many potential biodiversity sites in a given area travel costs may be low. To an extent both methods reveal what people have to pay to receive a benefit rather than the value they receive. Biodiversity values: Direct, underpinning, insurance, and options Impacts or dependencies: Both Examples of use: Research in England has shown substantial values (reflected in house prices) associated with proximity to high-value biodiversity habitats and designations. This technique allows businesses to understand the values of biodiversity to consumers, and use it to their advantage when considering pricing. For example, a housing developer may be able to determine the benefit of leaving a natural space within their housing development based on the increase in cost of the houses that are in close proximity to the natural area. |
Travel costs | ||
Stated preference | Contingent Valuation (CV) | Benefits: Focus on estimating demand, therefore offer a theoretically justified method to estimate use and non-use values for biodiversity. Non-use values cannot otherwise be easily estimated. Limitations: Highly subjective, and there is often variation between what people claim they are willing to pay with regard to biodiversity (especially summed across a number of surveys) and what is revealed by their behavior and affordable within their budget constraints. Results can be subject to numerous problems connected to participants’ lack of experience attributing monetary values to non-market goods (such as many of the benefits that biodiversity provides to society), and capacity to distinguish values across different levels of their provision (sensitivity to scope). Biodiversity values: Direct, some underpinning, insurance, and options Impacts or dependencies: Both Examples of use: Stated preference methods have been applied in different contexts ranging from valuing individual species to estimating the benefits of country-level biodiversity action plans. Businesses can use this approach to understand the wider benefits they are delivering through biodiversity-positive action, and estimate values associated with the impact of biodiversity loss on society. |
Choice Experiments (CE) | ||
Value (benefits) transfer | Benefits: Bypasses requirements for investment in new primary research. Limitations: Relationships between biodiversity and provision of benefits are often complex and context-specific. Value transfer requires the study used as input to have a very similar ecological and socioeconomic context as the current assessment in order to transfer values in a justifiable way. Validity of results is likely to be questionable, especially if the cultural/temporal/ecological context of the source study is not similar. Biodiversity values: Direct, underpinning, insurance, and options Impacts or dependencies: Both Examples of use: Context-specific values for different ecosystem services provided and/or supported by biodiversity (estimated using techniques outlined previously in this table) have been compiled in databases such as the TEEB valuation database (see table MV.2) and can be applied to estimate biodiversity values in similar contexts, or used in different contexts with suitable adjustments. This is the most common technique used by businesses to develop natural capital accounting. For a more detailed example, refer to the case study for Repsol’s natural capital valuation methodology. |
*The “biodiversity considerations” column in table 7.1 draws heavily from eftec (2015) and TEEB (2010). Annex B of the Protocol also provides more information about different monetary valuation techniques.
Selection of a valuation technique will often be aligned with the risks and opportunities you identified through your materiality assessment. For example, if your business is facing legal risks from its biodiversity impacts, the consequences could be understood through costs of non-compliance. Alternatively, to understand the business value of your dependency on biodiversity, you could estimate the costs of replacing biodiversity benefits.
See below to see how a leading energy company is integrating biodiversity within its natural capital valuation methodology.
Company example: Energy companyRepsol, an energy company operating globally, is committed to being at the forefront of the industry in its efforts to measure, mitigate, and minimize the negative impacts of its projects and operations on society and the environment. Repsol is adopting a natural capital approach for environmental decision-making because it enables them to clearly link ecological systems with their contributions to human well-being.
Repsol has developed a novel methodology for the comprehensive valuation of the environmental impacts and dependencies of its projects and operations worldwide, called the Global Environmental Management Index (GEMI). The GEMI has been piloted with Repsol’s operations in the Block 57 concession located in the Amazonia region of Cusco, Peru. This is one of the richest areas for biodiversity in Peru.
The GEMI methodology analyzes improvements (impact reductions) derived from application of the mitigation hierarchy. Environmental impacts are first measured in biophysical units, then converted into monetary values, primarily using value transfer. Modulation factors are then applied to the monetary values to calculate dimensionless “Impact Units.” Repsol has applied the GEMI at Block 57 to estimate the value associated with natural capital loss, comparing the on-ground scenario, where measures to mitigate impacts on biodiversity were implemented, and a counterfactual scenario with no biodiversity mitigation measures. Monetary values for ecosystem services were estimated through collation of 119 values for similar ecosystem services from 27 studies, and then applying site-specific adjustments. Biodiversity is incorporated through adjustment of ecosystem service values for specific biodiversity features, such as the abundance of protected species, and threats such as habitat loss and fragmentation.
Repsol are currently refining the GEMI methodology, and will use the Valuing Guidance to support this process. For example, Repsol can more explicitly consider the importance of biodiversity for delivery of different ecosystem services, and how the economic values for ecosystem services may change with changes in the condition of biodiversity. Furthermore, they can use the Guidance to broaden the scope of their method to also assess business dependencies on biodiversity and ecosystem services, and ensure that limitations to valuation techniques and implications for interpretation of biodiversity valuation results are consistently recognized. Repsol are currently working to ensure these considerations are integrated within their GEMI methodology.
Repsol, an energy company operating globally, is committed to being at the forefront of the industry in its efforts to measure, mitigate, and minimize the negative impacts of its projects and operations on society and the environment. Repsol is adopting a natural capital approach for environmental decision-making because it enables them to clearly link ecological systems with their contributions to human well-being.
Repsol has developed a novel methodology for the comprehensive valuation of the environmental impacts and dependencies of its projects and operations worldwide, called the Global Environmental Management Index (GEMI). The GEMI has been piloted with Repsol’s operations in the Block 57 concession located in the Amazonia region of Cusco, Peru. This is one of the richest areas for biodiversity in Peru.
The GEMI methodology analyzes improvements (impact reductions) derived from application of the mitigation hierarchy. Environmental impacts are first measured in biophysical units, then converted into monetary values, primarily using value transfer. Modulation factors are then applied to the monetary values to calculate dimensionless “Impact Units.” Repsol has applied the GEMI at Block 57 to estimate the value associated with natural capital loss, comparing the on-ground scenario, where measures to mitigate impacts on biodiversity were implemented, and a counterfactual scenario with no biodiversity mitigation measures. Monetary values for ecosystem services were estimated through collation of 119 values for similar ecosystem services from 27 studies, and then applying site-specific adjustments. Biodiversity is incorporated through adjustment of ecosystem service values for specific biodiversity features, such as the abundance of protected species, and threats such as habitat loss and fragmentation.
Repsol are currently refining the GEMI methodology, and will use the Valuing Guidance to support this process. For example, Repsol can more explicitly consider the importance of biodiversity for delivery of different ecosystem services, and how the economic values for ecosystem services may change with changes in the condition of biodiversity. Furthermore, they can use the Guidance to broaden the scope of their method to also assess business dependencies on biodiversity and ecosystem services, and ensure that limitations to valuation techniques and implications for interpretation of biodiversity valuation results are consistently recognized. Repsol are currently working to ensure these considerations are integrated within their GEMI methodology.