Wall Street was built to trade stocks and bonds. Now it focuses attention on the financial value of the natural world and how to appropriately value investment methods. This leaves academics puzzled by weighty questions, such as ‘what is the value of a bee?’
Earlier this year, the Natural Capital Investment Alliance was formed by HSBC venture Pollination, Lombard Odier and Mirova. It aims to raise $ 10bn by 2022 and find new streams of revenue from natural habitat, such as forests, oceans and coral reefs, as part of projects designed to protect or restore. these environments.
Natural capital initiatives range from simple solutions, such as investing in companies that prevent plastic pollution, to many esoteric ones such as buying and rehabilitating unwanted land.
In the long run, supporters hope to create a variety of environmentally relevant assets. Banks are also beginning to include purposes based on the nature of the debts involved in sustainability. Last year, in a loan it arranged for Mexican cement company Cemex, BNP Paribas agreed to provide financial incentives for the company to preserve the biodiversity of the areas it excavates and improve water use in arid regions.
The idea of earning or saving money for refusing to destroy the natural world is a curse to many climate activists. But promoters say innovations like paying companies not to destroy forests could be a way for green-minded investors to put their money to use more to buy green. bonds or exclude oil producers from their portfolios.
“The answer of economists is to put a dollar or pound signature in front of as many things as possible. And of course parts of the environmental movement really hate that,” said Diane Coyle, professor of public policy. at the University of Cambridge, where he spearheaded a project designed to assess the value of natural capital.
“If you don’t try to add an amount of money, put zero. And that’s the wrong answer,” he added. “Everything you invest should be visible through this lens.”
The importance of protecting the environment and ecosystems has topped the political agenda this year, with the United Nations warning that combating greenhouse gas emissions should not be the only focus of green efforts.
A 2020 report on biodiversity economics from Cambridge professor Partha Dasgupta, who highlighted the financial risks associated with environmental destruction, serves as a “arms call for the asset management industry” as Michael Ridley, senior responsible investor to the specialist from HSBC.
But for all the talk of creative thinking, the sources of income from natural capital investment are familiar – and have always been linked to the sale of carbon offsets. These are units that organizations can buy to pay for their emissions, and are designed to reduce the amount of carbon in the atmosphere. But there is a difference in quality and legitimacy.
As organizations seek to do well on net zero commitments, interest in offsets has skyrocketed.
The poll said it intended to launch a carbon offset fund of up to $ 2bn, while about one-third of the € 500m natural capital fund launched by Mirova, an early space mover, was linked to the projects. carbon offset. Mirova said she expects credits linked to other environmental consequences, such as restoring biodiversity in a region, to become a place of growth.
Other natural capital investments have a bias toward traditional debt or equity negotiations.
Most of Mirova’s funds are split between loans for sustainable commodity production and style equity investments to companies that address plastic pollution or support sustainable fisheries.
However, investment managers say many unusual opportunities are coming up. Pollination said the purchase and conversion of “marginal land” for agricultural use was an important opportunity, even if the group could not point to any example of a deal.
Right now, the market is small. “$ 150m is a huge fund,” said Sandra Carlisle, senior responsible investment specialist at HSBC Asset Management and lead marketing for Pollination, adding that she expects it to start even stronger in the future. years.
Investors all over the world are starting bombings save reports on the importance of natural capital. In January 2021, several companies, including BlackRock, Fidelity International, Bank of America and Schroders, signed Prince Charles ’ Initiative of Terra Carta to “place nature, people and the planet at the center of the creation of global value.”
One obstacle to the development of increasingly new environmentally-related financial products is the difficulty of giving value to proper consideration of nature. Stanford University’s Natural Capital Project academics bring together researchers from universities and NGOs around the world to create models that “map and value products and services from nature that sustain and sustain human life. “.
Its open-source software, known as Integrated Valuation of Ecosystem Services and Trade-off, offers a variety of tools to value the ways in which ecosystems contribute to the economy, through processes such as plant pollination. and flood relief.
But putting a price on nature isn’t enough to preserve it, says Gretchen Daily, faculty director at the Natural Capital Project. “Saying‘ this is what matters ’is impossible even without the policy force and some mechanism for pushing investment to secure natural capital,” he said.
Johan Floren who is leading the continuation of AP7, the € 80bn Sweden pension fund, said protecting biodiversity and natural capital was a priority, but he doubted it could be an asset class in its own right. Instead of buying natural capital -themed investments, he said AP7 prefers to push portfolio companies to clean up their act.
“It’s not like every UN Sustainable Development Goal invests,” he said.
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