06/21/2010 05:12 am ET Updated May 25, 2011

Shattering Glass Walls at the Multilateral Development Banks

Investing in ecosystem services will help MDBs improve the livelihoods of the poor.

World Bank Group President Robert Zoellick declared the demise of the term "Third World" in the run up to this weekend's spring meetings of the IMF and World Bank. Instead, he rightly said, we must recognize that we now live in a multi-polar world.

The developing country divide isn't the only glass wall that needs to be shattered. The development and environment communities must also stop viewing their goals as separate or even at odds with each other. As nature declines, so do the many vital goods and services it provides to people. These range from the life-giving - fresh water, food, wood fuel, flood protection - to the life-affirming - recreation and spiritual enrichment. When several hundred scientists examined the health of 24 ecosystem services globally for the Millennium Ecosystem Assessment in 2005, only four had shown improvement over the past 50 years. A startling 15 were in serious decline, while five hung in the balance.

Ecosystem degradation inevitably hits the poor hardest. In particular, it increases the vulnerability of the 75% of the world's poorest people who live in rural communities and depend heavily on nature for a living. One study in India found that while the value of forest services such as fresh water, soil nutrients and non-timber forest products was only about 7% of national GDP, it represented 57% of income for the rural poor.

The World Bank: Primed to Invest in Nature to Improve Livelihoods

Given this relentless erosion of the Earth's natural resources, and their importance to poor rural communities, it is hardly surprising that we are falling short of the 2015 Millennium Development Goals to combat poverty. On current trends, most developing countries are likely to miss many of their MDG targets.

The World Bank, however, is uniquely positioned to help countries get back on track by investing in nature in order to improve the livelihoods of the poor. A new report by the World Resources Institute, Banking on Nature's Assets, shows how, presenting a roadmap for the World Bank and other multilateral development banks (MDBs) to use in mainstreaming ecosystem services into their work.

To strengthen the business case for investing development dollars in ecosystems, MDBs need to expand the focus of cost benefit analysis beyond marketed goods such as timber and crops to include nature's regulating and cultural services. As the following examples show, such an approach highlights the value of ecosystem services that often do not show up in a traditional accounting approach.

In Costa Rica for example, wild bees from neighboring forests improved coffee yield by reducing the frequency of "peaberries" (small misshapen seeds) by a quarter. Protecting forests, in that case, translated into US $60,000 per year in additional yield for just one Costa Rican farm. In nearby Belize, tourism generated by coral reefs and mangroves represented 12-15 percent of GDP in 2007. And in Thailand the economic value of mangroves rose from around $800 to over $35,000 per hectare when their vital role in providing coastal protection and fish nurseries was included in a cost benefits analysis.

An up-front assessment of ecosystem service trade-offs by MDBs can also improve risk management, leading in turn to more effective and equitable development outcomes. For example, dams that supply power to cities, or irrigation for agriculture, often depend on upstream forests to prevent reservoir erosion and siltation. But at the same time they can undermine a river's capacity to support fisheries or sustain downstream wetlands that provide water filtration and coastal protection services to communities. Similar trade-offs can exist for the shrimp farms that increasingly dot developing country coastlines. While these serve to increase export markets, they often do so at the expense of the coastal protection and nursery services provided by the mangroves they replace. Likewise, palm oil plantations, a growing fixture in southeast Asia, often involve a trade-off between the myriad ecosystem services that primary forests provide--including carbon storage, pollination, and erosion control--and global exports.

Aligning Policies and Incentives to Protect Natural Resources

How can MDBs prevent such trade-offs from further damaging Earth's natural capital and humanity's prospects for eliminating poverty?

In brief, the World Bank and partner countries need to build national capacity to design policies and incentives that align the interests and actions of farmers, forest owners, and other users of natural resources with sustaining rather than degrading ecosystem services. One well known way of doing this is to pay users for ecosystem services. Other approaches include:

  • land zoning to protect ecosystem service hotspots,
  • elimination of perverse subsidies that harm ecosystems, and
  • certification programs for sustainably produced goods such as timber, palm oil, and shrimp.

Breaking the Development-Environment Glass Wall

An ecosystem services approach is not a substitute for the traditional focus of environment specialists on biodiversity and protected areas. Both are needed. But ecosystem services based approaches are particularly suited to MDB efforts to mainstream environment into their core lending operations in order to improve development outcomes.

While experts on either side of the environment-development divide peer through more often these days, a glass wall too often remains not only in development finance institutions, but also in national governments. As they convene in Washington this weekend, the World Bank and IMF leadership would do well to ponder how to take a lead in shattering the environment/development glass wall which still divides the new multi polar world.