Post date 26 Jan 2026 (original LinkedIn date)
Original LinkedIn version· 2,624 words
Mispriced services and the real balance sheet of resilience
Most supply chains are built on the assumption that nature is stable, free, and somebody else’s concern. That assumption used to hold often enough to feel rational. But let’s be honest, it is much less safe now, because climate volatility is rising, ecosystems are already heavily degraded, and many production systems have been tuned for efficiency rather than robustness.
A potential useful shift would be to treat ecosystem services as productive infrastructure. Rainfall generation, soil structure, peat hydrology, pollination, sediment flows, and water purification are not economic externalities in any meaningful operational sense. They are enabling assets. When they degrade, we get a delayed invoice: input costs rise, yields wobble, disruption becomes more frequent, and governments step in with emergency spending, clean-up, or subsidies. That means the ultimate payer is usually the household, sometimes through prices and sometimes through public finance.
Investors often miss this because the first-order effects can look like mere commodity noise. But when you map the causal chain, it becomes clear that ecosystem degradation is not just an ethical issue. It is a long-duration driver of volatility, capex, legal risk, and stranded models.
To help illustrate the point, I’ve created a series of eight case study examples. Each one follows the same path: mispriced service, optimised decision, hidden payer, investor materiality. The examples start global and then hone in on the UK.
Global examples
1) Amazon ‘flying rivers’ and cross-border water security
Mispriced service: The Amazon is not just a carbon store. It is also a continental-scale water pump. Moisture recycled by forests feeds atmospheric flows that sustain rainfall downwind, including in parts of Peru and Bolivia. Recent research has highlighted how deforestation can weaken these flying rivers’ and reduce rainfall in areas that are economically and politically separate from the deforestation frontier. (AP News)
Optimised decision: Land conversion, commodity expansion, and the financing and trading systems that support them tend to optimise for near-term yields, throughput, and export revenue. Procurement teams see price, volume, and contractual reliability. Policymakers see GDP, jobs, and fiscal receipts. The rainfall dependence of a neighbouring country is not on the dashboard, even if it is physically real.
Hidden payer: When the moisture pump weakens, the costs show up as drought risk, crop failures, reduced hydropower reliability, and water stress. These costs are disproportionately borne by households and public systems (not even in the same country) because food and energy shocks cascade quickly, and governments become the insurer of last resort during shortages.
Investor materiality: There are at least four channels that I can think of. First, production risk for agriculture and hydropower assets exposed to rainfall. Second, sovereign and sub-sovereign stress where food and energy subsidies rise. Third, commodity volatility that looks exogenous, but is partly endogenous, to land-use change. Fourth, transition and litigation risk as international pressure grows around deforestation-linked trade. The investment point is not simply ‘deforestation is bad’ – that’s hopefully obvious. It is that deforestation can impair the biophysical engine that underwrites regional economic stability, including across borders.
2) Indonesian peatlands, fire economics, and transboundary haze
Mispriced service: Tropical peatlands store vast carbon, but the operational service that gets mispriced first is hydrology. Intact peat is wet and comparatively fire-resistant. Drain it and it becomes combustible fuel.
Optimised decision: Drainage and land conversion are pursued because they unlock short-term agricultural production and land value. In that logic, the fire risk is treated as a manageable operational issue, not a system-level consequence of altered hydrology.
Hidden payer: When the big fire years arrive, the bill is not paid only by the operators who created the conditions. The World Bank estimated that Indonesia’s 2015 fires cost at least US$16.1 billion, equivalent to about 1.9% of GDP. (The World Bank Docs) Those costs include health impacts, disrupted transport, lost productivity, damaged agriculture and forestry, and broader economic drag. The impacts also spill across borders through haze episodes, so other countries’ households and governments pay too. (Al Jazeera)
Investor materiality: For investors, this is a clean example of how what seem externalities become financial risk. You see supply disruption, asset impairment, higher insurance costs or exclusions, regulatory tightening, reputational damage for brands linked to land conversion, and sometimes direct liability. The second-order effect is that repeated shocks change the cost of capital for the whole sector. Even firms doing the right things can be repriced if the system is perceived as structurally fire-prone. That is exactly what mispriced services look like when they finally get priced.
3) Mekong hydropower and the collapse of ‘protein infrastructure’
Mispriced service: The Mekong’s ecological function behaves in many ways like food infra. Fisheries provide food security and livelihoods for millions. The Mekong River Commission has long emphasised the importance of the basin’s fisheries and the pressures created by dams and other developments. (mrcmekong.org)
Optimised decision: The visible optimisation is energy security, export revenue, and grid stability. Dams monetise megawatts. The less visible cost is that dams change flows, fragment habitats, trap sediment, and block migration. Those effects are slower, diffuse, and politically awkward, so they get discounted.
Hidden payer: When fisheries decline, the impact is not abstract biodiversity loss. It is protein loss, higher food prices, and reduced livelihood resilience. Reuters summarised a WWF-led warning that one-fifth of Mekong fish species are at risk of extinction and noted how dams disrupt flows and block migration in a river system that supports tens of millions of people. (Reuters) Households pay in food insecurity and income shocks. Governments pay in social support, conflict management, and adaptation.
Investor materiality: Investors see risk across hydropower (hydrology volatility and political constraints), agribusiness (delta productivity and salinity dynamics), and consumer sectors (food inflation and social stability). There is also an underappreciated strategic risk: once a river system is committed to a dam pathway, reversal is hard. That creates the possibility of stranded political capital and stranded physical assets if social licence collapses or if downstream impacts trigger binding international constraints.
4) Pollinators as an unpriced input to high-value crops
Mispriced service: This is a widely recognised one as pollination known as a critical production factor. IPBES estimated the annual market value of crops directly linked to pollination services at US$235 billion to US$577 billion (2015 dollars). (ipbes.net)
Optimised decision: Modern industrial agriculture practices often prioritise for short-term yield, uniformity, and controllability. Habitat simplification and certain pesticide regimes can raise immediate efficiency while eroding pollinator abundance and diversity over time. Because pollination is rarely paid for explicitly, it is treated as free and stable.
Hidden payer: When pollinator services decline, the costs express as lower yields, poorer quality, and higher price volatility in pollinator-dependent crops. Ultimately the farmer hurts, but consumers also pay through higher prices and reduced availability. Governments may pay too via support schemes and wider food-system stabilisation measures when volatility hits.
Investor materiality: This risk travels through food and beverage portfolios in a very investable way: margin compression, greater earnings volatility, and higher capex for mitigation (hand pollination, habitat investment, supply diversification). It also interacts with transition risk because biodiversity-focused regulation and disclosure are tightening. The best way to communicate it to investors is not just as ‘save the bees’, but as ‘a large fraction of high-value output relies on a biological service that is being run down without a replacement asset’.
UK examples, with a food security and household-cost lens
5) Hedgerow loss and the removal of field-scale resilience infra
Mispriced service: Hedgerows are multifunctional infra. They slow runoff, reduce soil erosion, support pollinators and natural pest control, and shape microclimate and shelter. The Woodland Trust estimates around 118,000 miles of hedgerows have disappeared since 1950, largely due to agricultural intensification. (Woodland Trust) Evidence reviews describe regulatory services delivered by hedges, including flood risk reduction and soil loss reduction. (ResearchGate)
Optimised decision: The optimisation was machinery efficiency and throughput, the drive of industrial agriculture as we’ve noted above. Bigger fields reduce turning time, simplify operations, and can lift short-run profitability. The hedgerow is seen as a cost centre, not as an asset that stabilises production.
Hidden payer: The costs arrive later as soil loss, greater nutrient and sediment loading into watercourses, reduced biological control, and more rapid runoff during heavy rainfall. Those costs do not land neatly on farm accounts. They land in water treatment, dredging, flood response, road drainage maintenance, and insurance pools. The household pays through water bills, council tax, and national taxation, while also facing greater food price volatility when yields are more weather-sensitive.
Investor materiality: For UK food security, hedgerow loss is best framed as a volatility amplifier. When rainfall intensity rises, landscapes with fewer buffers shed water faster and lose soil. That raises yield variability and input dependence. Investors should care because variability drives working capital strain, raises the probability of covenant stress in bad years, and increases the capex needed for drainage, soil remediation, and compliance. In simplistic terms, hedgerows convert rainfall volatility into manageable hydrology. Remove them and you socialise the cost of extremes.
6) Soil compaction and organic matter loss as a national yield and flood-risk problem
Mispriced service: Healthy soil structure is water infra + fertility infra in one. The Environment Agency’s summary notes that almost 4 million hectares of soil are at risk of compaction, that intensive agriculture has caused arable soils to lose about 40% to 60% of their organic carbon, and that soil degradation was calculated in 2010 to cost £1.2 billion per year. (GOV.UK). Imagine what that figure is today?!
Optimised decision: The so-called optimisation is short-term output and operational efficiency. Heavy machinery, tight rotations, and input-led yield maximisation can look rational on an annual P&L. The decline in structure and infiltration capacity is slow and not routinely monitored in a way that feeds into finance decisions.
Hidden payer: Compacted, low-carbon soils reduce water infiltration capacity and store less moisture. That means more surface runoff in storms and less buffering in dry spells. The result is higher flood peaks and higher drought stress, which hit yields and raise input requirements. When runoff carries sediment and nutrients into rivers, water companies and regulators have to respond, again with costs largely recovered from households.
Investor materiality: This is a classic case of an asset being impaired off-balance-sheet. Soil is the productive base of UK food security, but many business models treat it as a fixed platform rather than a depleting asset. Investors feel it through more volatile earnings in agribusiness, higher default correlation in bad weather years, and rising capex needs for mitigation. There is also a systemic angle: if soil degradation pushes food prices up, it becomes a political economy issue, and policy responses can be abrupt. That creates regime risk for anyone financing input-heavy production systems that depend on continued permission to externalise soil loss.
7) Lowland peat in the Fens: high output today, shrinking viability tomorrow
Mispriced service: Lowland peat is an exhaustible natural asset when drained. The key service is the peat’s waterlogged condition, which preserves the soil. Drainage flips that service into oxidation and subsidence. A recent UK discussion paper cites Climate Change Committee estimates that there may be only enough peat soil left to continue farming as currently practised for another 20 to 50 years in some lowland areas. (The Wildlife Trusts)
Optimised decision: The optimisation is extremely understandable. Drained peat is among the UK’s most productive land for certain horticultural crops, so farming systems and regional economics have built around it. The incentives reward near-term output, while the depletion rate is treated as a distant problem.
Hidden payer: Unsurprisingly the hidden cost is that society inherits a declining land base and rising water management burden. As land subsides, pumping and drainage requirements intensify, infrastructure becomes more vulnerable, and the risk of salinity and waterlogging dynamics increases. If and when production models have to change fast, consumers pay through price impacts and the state pays through transition support, flood infrastructure, and regional economic adjustment.
Investor materiality: Investors should see lowland peat as a potential stranded-model risk. It is not just that emissions are high. It is that the substrate itself is being consumed. That creates a countdown dynamic. You see repricing risk in land values, capex escalation for drainage and water control, and ultimately the need for a managed transition toward wetter farming systems and alternative land uses. If that transition is delayed, it becomes more abrupt and more expensive, which increases the probability that households will pay through public finance.
8) The River Wye, cheap protein, and the cost of cumulative nutrient pollution
Mispriced service: Healthy rivers are water infrastructure, ecological infrastructure, and local economic infrastructure. The Wye story is a modern example of how diffuse pollution accumulates until it becomes a binding constraint. The Office for Environmental Protection has summarised concerns about alleged failures to protect the River Wye from diffuse agricultural pollution, including pollution associated with intensive poultry units. (Office for Environmental Protection)
Optimised decision: The optimisation is cheap protein at scale. Intensive poultry systems deliver low unit costs, stable supply, and tight supermarket logistics. Planning and permitting decisions are often made unit by unit, while nutrient loading is cumulative. That mismatch is where myopia lives. Short-term lower prices, long-term much higher!
Hidden payer: Once the river tips into chronic eutrophication, the costs spread. Households and local businesses lose amenity value and tourism income. Local authorities face development constraints where nutrient neutrality or pollution limits bite. Regulators and public bodies face escalating monitoring and remediation demands. In late 2025, a Ricardo report for Herefordshire Council set out an evidence base and options appraisal focused on phosphorus in the River Wye context. (councillors.herefordshire.gov.uk) Litigation risk is also growing, which is another way costs get redistributed to households, either through higher prices or through public and private legal costs. (Leigh Day)
Investor materiality: This is where nature loss becomes a very conventional risk story: permitting and planning risk, compliance capex, reputational risk tied to supermarket supply chains, and liability risk. The Guardian has also reported on tensions between NGO partnerships and scrutiny of supply chain impacts in the Wye case, which is a reminder that reputational risk often arrives before formal regulation. (The Guardian) For investors, the key is that a cheap-protein model can become financially brittle when nutrient capacity is binding. At that point, externalities stop being external. They become hard constraints, and the transition costs tend to be shared across consumers and taxpayers unless clear liability is enforced.
In the UK we have spent decades optimising food systems for output, uniformity, and low unit cost, while quietly running down the natural infrastructure that stabilises production: hedgerows, soil structure, peat hydrology, and clean water systems. The result is a food system that can look efficient in normal years, but is more fragile in extreme years. And we’re going to pay for it in the long run. From an investor materiality lens, mispriced services show up as volatility, capex, and regime shifts. From a household lens, they show up as the residual bill. Higher food prices, higher water treatment costs, higher flood recovery spend, and a creeping tax burden to patch what was once provided by functioning ecosystems.
Think of it in three parts: first, food security is not just about yields - it is about yield stability under volatility; second, nature is part of the production function, not a side constraint; and, third, when nature is degraded, the household becomes the insurer of last resort unless governance and markets deliberately reassign costs back to the decision-makers who created the risk. We all end up paying.