In February 2021, Partha Dasgupta delivered a report to the UK government that rethinks the economics of biodiversity. It is the most important economic work on nature since the Stern Review on climate change — and more radical than it.

“Our economies are embedded in nature, not the other way round. Nature is our home. It is also our most precious asset.”

— Partha Dasgupta, The Economics of Biodiversity, 2021

Origins: A Stern Review for nature

When then-Chancellor of the Exchequer Philip Hammond commissioned Sir Partha Dasgupta in 2019 to conduct an independent review of the economics of biodiversity, the ambition was clear: a work that would do for the biodiversity crisis what Nicholas Stern’s 2006 report did for climate change — translate an ecological emergency into the language of economics.

The result, published in February 2021, exceeded expectations. Across some 600 pages, Dasgupta — Frank Ramsey Professor of Economics at Cambridge, one of the most influential economists of his generation — develops a complete reorientation of the relationship between the economy and nature. This is not a report with bullet-point recommendations. It is an economic argument.

The core thesis: the economy as a subsystem of nature

The central image of the Dasgupta Review is radically simple: the economy is not a system to which nature stands as an external factor. The economy is a subsystem of nature. It is embedded in the biosphere like an organ within a body — functional only as long as the overall system is intact.

This seemingly philosophical statement has concrete mathematical consequences. Dasgupta shows that GDP — the dominant measure of economic performance — systematically miscalculates. It captures the value added through production, but not the simultaneous depletion of natural stocks. A farmer who over-fertilises the soil and increases the harvest appears in GDP as growth. The gradual loss of soil fertility does not appear at all.

Three types of capital and the wealth gap

Dasgupta distinguishes three types of capital that together constitute a society’s inclusive wealth:

  • Produced capital: Machinery, infrastructure, buildings. Between 1992 and 2014, it doubled per capita.
  • Human capital: Knowledge, health, skills. Over the same period, it rose by roughly 13% per capita.
  • Natural capital: Ecosystems, biodiversity, resources. Between 1992 and 2014, it fell by roughly 40% per capita.

The conclusion is sobering: humanity has become poorer — in the sense that matters for long-term welfare. We have built produced and human capital by consuming natural capital. This trade-off was not only ecologically but also economically irrational.

Supply and demand: the fundamental problem

Dasgupta frames the central problem in an equation every economist understands: we demand more from nature than it can supply. According to Global Footprint Network calculations, we already need 1.6 Earths to sustainably meet global resource consumption. We draw the excess from the capital stock — from natural wealth itself.

This is not a metaphor but an accounting question: every over-extraction from an ecosystem — fishing beyond sustainable limits, groundwater withdrawal exceeding recharge rates, deforestation beyond regrowth — is a drawdown of the capital stock. And unlike produced capital, many losses of natural capital are irreversible: an extinct species does not return; a destroyed reef regenerates over centuries, if at all.

Why the market fails: prices and institutions

Dasgupta identifies two structural causes of market failure:

Pricing failure: Ecosystem services have no market price because no one holds property rights over clean air, pollination or climate regulation. What has no price is treated as free — and thus overused. The external costs of nature consumption are socialised while private gains are privatised.

Institutional failure: Government subsidies massively favour nature-destructive activities. Estimates suggest that up to $4–6 trillion per year globally flows to subsidies for fossil fuels, industrial agriculture and fishing — activities that operate directly at the expense of natural capital. This amounts to a negative pricing of nature, funded by taxpayers.

The recommendations: reform at three levels

Dasgupta demands no minor corrections. He calls for systemic reforms:

  • National accounting: GDP must be supplemented by measures of inclusive wealth that capture natural capital and book its depletion as a loss.
  • Financial market reform: Central banks and financial regulators must systematically integrate nature risks into their models. Harmful subsidies must be phased out; private financial flows redirected into nature-positive investments.
  • Education and governance: A fundamentally changed relationship to nature — no longer as a resource but as the system within which we live — must permeate education, political structures and international cooperation.

What this means for natural capital markets

The Dasgupta Review provides the theoretical foundation for why natural capital markets are not merely possible but necessary. If nature is a capital stock, its maintenance and growth must be treated like any other investment: calculable, financeable, capable of generating returns.

For landowners this means concretely: the ecological condition of a piece of land is no longer a side note but an accounting entry. Land that delivers ecosystem services — carbon storage, water purification, pollination, habitat function — creates measurable economic value. Germany’s eco-point system is a first institutional mechanism for monetising that value.

The question is no longer whether natural capital has financial value. The question is how quickly the institutions — regulators, banks, rating agencies, markets — will translate that value into prices. The Dasgupta Review has supplied the theoretical framework. TNFD and the EU Nature Restoration Law are translating it into regulatory practice.

Source: Dasgupta, P. (2021). The Economics of Biodiversity: The Dasgupta Review. HM Treasury, London. Fully available at: gov.uk/dasgupta-review