Climate & Energy

October 5, 2025

Markets fail to account for Nature. A leading economist claims to have found a fix

Moriah Costa,

Climate & Capital Media

The world’s economic system has taken nature for granted and now we’re paying the price. That’s the premise of Partha Dasgupta’s latest book, On Natural Capital: The Value of the World Around Us.

Dasgupta, an economist at the University of Cambridge and author of a 2021 review of biodiversity economics for the UK government, is very concerned about the gap between the demand and supply side of natural capital. The demands on nature and what nature can supply have been over-extended, he says.

“Nature is underpriced,” he tells Green Central Banking. This is “the fundamental problem the global economy now faces … we are sunk, because you can’t just keep on drawing on nature”.

The destruction of natural habitats, including the loss of coastal lands and forests, are just a few examples of this, he says.

The problem is that capital markets don’t price in the use of nature. Water systems or the atmosphere, for instance, are considered to be free. And when things are free people tend to use more than they might need, Dasgupta says.

“The atmosphere is free; that’s one reason we have an excessive emission of carbon. If you start charging people for emitting carbon at a high enough rate, of course carbon emissions will be reduced,” he said.

How to price Nature

At the heart of Dasgupta’s book is how to price nature.

“There’s no ifs and buts about it, but the market got it wrong, because many of these [natural] goods don’t have prices,” he says.

Cost doesn’t have to be monetary, Dasgutpa explains, but it needs to be something that will deter companies and people from using up or polluting natural resources more than they otherwise might. Instead, he suggests thinking about costs by determining what social value nature gives us, then pricing that to help rebalance nature.

“You look for the services that natural capital provides and find ways to put a price on them. The price is a way of putting a value on it. We use the word price. It doesn’t mean a market price. We call it accounting price, or a shadow price, but it’s the social value. That’s the idea, because the market doesn’t work for that particular set of commodities. So, you’re trying to find out ways by trying to estimate what it is contributing to human welfare.”

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For example, Dasgupta suggests compensating countries that have tropical rainforests, paying them not to deforest, a concept that is already being explored through the Tropical Forest Finance Facility. He has also long argued that there is a need for an international institution in parallel to the World Bank and IMF to manage the oceans, as they are an open-access resource that are not accurately accounted for in pricing models.

The western world, he says, has got the idea of the environment and enlightenment wrong.

“Increasingly, western culture has moved in that direction of how successful we have been. It’s been essentially a celebration of science, culture, you name it – achievement in music and so forth. Meanwhile, of course, we’re trashing nature like crazy … [Nature is] what you demand of her, and if you demand too much of her, she’s going to start becoming less and less healthy.”

The role of regulators and disclosures in pricing Nature

Dasgupta doesn’t like to talk about climate change, especially with critics. That’s because people don’t understand or connect with such a vague and abstract idea, he says.

But people do relate to the idea of the natural world they are used to suddenly changing. It is more difficult to dismiss the benefits that forests provide when talking about deforestation than talking about weather patterns, he adds.

“[Talking about] biodiversity, the fact that you’re losing species, insects and so forth, that’s a lot more convincing,” he said.

While Dasgupta’s book spends a lot of time exploring financial markets, regulators and policymakers also play a role in pricing nature. He is strongly in favor of mandatory disclosures because it can provide information missing from market prices, he says. While consumers can typically infer the quality of a product from its price, since nature is not included in current pricing models the price is not a true reflection of its worth. In other words, there is no way for consumers to know the toll a particular product might be taking on the natural world.

He also encourages regulators to spend time with ecologists to have a better understanding of the disclosures and reporting that cross their desks.

“They need to have an understanding of why they’re inspecting what they’re inspecting, because it’s important … to be able to report back and advise those who are setting the standards. There should be a dialogue, as opposed to just carrying out instructions,” he added.

On Natural Capital by Partha Dasgupta is published in the UK by Witness Books.

Article reprinted with Permission as part of GreenMoney’s ongoing collaboration with Climate and Capital Media.

Article by Moriah Costa is an award-winning freelance journalist and editor who covers personal finance, investing, culture, and environmental issues. Her work has been published in Thomson Reuters, Money, The Guardian, and others. She previously worked as a banking reporter at S&P Global. Originally from Arizona, she’s lived in London, Madrid, and D.C. She currently calls Paris home.