How Scientists and Economists are Trying to Solve Environmental Problems by Attracting Investment
If you’ve seen the Netflix documentary, Seaspiracy, then maybe you’ll agree with me that perhaps the boldest claim mentioned there was that the Earth’s oceans will be virtually empty by 2048 — that’s 27 years from now!
But the thing with documentaries, don’t just believe all the statistics they spoonfeed you. With a bit of fact-checking, I found out in the 2020 FAO report on world fisheries and aquaculture that 34.2% of fish stock are fished at “biologically unsustainable levels”, while 59.6% are “maximally sustainably fished”. Do you ever wonder where these numbers came from? How do they know when it’s sustainable and when it’s not?
Scientists and economists break it down for us through natural capital accounting.
What is Natural Capital?
Natural capital refers to components of the natural environment that provide value to people.
This includes geology, botany, water bodies, landforms, and biodiversity. All of these components are natural assets of the world distributed to sovereign countries. And just like any asset, these natural stocks must be valuated financially and accounted for in terms of natural capital.
What is Natural Capital Accounting?
How can scientific studies boldly say our oceans will be virtually empty in the next 27 years? Well, they do natural capital accounting. It is valuing our natural assets by mapping out where they are located, looking at the conditions of the ecosystems, how much of these natural assets people use, and how much do they benefit the well-being of the human population.
Important Role of Natural Capital Accounting in Developing Sustainability
Humans use the environment in a variety of ways for benefits. For example, people get wood from the forests for construction materials. Water purifying companies use freshwater to provide drinking water. Local governments collect tourism fees in exchange for recreation in natural parks and attractions. Fishing companies catch fish for human consumption.
They earn profit through natural income, otherwise, it would be futile to continue what they’re doing. But unfortunately, at the cost of the environment. How do we know when business profit becomes environmentally unsustainable? To give our environment a chance of survival, our natural resources must be properly accounted for and evaluated.
However, some businesses are already aware of their environmental responsibility. They don’t need to be convinced that their business is unsustainable — they know it. They’re already more focused on the decision-making and the problem-solving stage. Business-oriented questions like:
- How many trees do we have to plant to produce enough water for our bottling operations?
- Which type of trees produces more water?
- Where should we plant these trees?
- For every liter of water that we consume, how many trees do we have to plant to make it sustainable?
- When will the ecosystem naturally recover and by how much more trees?
These questions can only be answered by gathering data. Placing a quantifiable number in the answers gives a tangible context especially for the decision-makers in corporate businesses and local governments. It gives them direction to where their sustainable solutions should focus on. Or on how regulatory environmental policies should be made more effective.
How Does Natural Capital Accounting Work?
There are frameworks around the world that environmental scientists and business economists have worked on together to have standardized systems in place. To bridge the gap between economic profit and environmental sustainability, they have created scientific models through advanced technology and scientific research.
System of Environmental Economic Accounting (SEEA) of the United Nations
GDP is a good sign of economic growth but it has its limitations. As the UN says, “it is not an effective measure of societal progress”. Indeed, economies are thriving nowadays but the environment isn’t — case in point, global warming and climate change. To address this constraint, the System of Environmental Economic Accounting (SEEA) was developed.
“The SEEA is the internationally agreed measurement framework for natural capital and its relationship to the economy. It shows the many ways in which natural capital influences the economy/human well-being as well as the ways in which the economy affects natural capital.” — United Nations, 2020
The SEEA has two models: the Central Framework (SEEA-CF) and the Experimental Ecosystem Accounting (SEEA-EEA).
- SEEA-EEA maps out the ecosystem conditions and services across terrestrial, freshwater, and marine areas.
- While, SEEA-CF looks at the flow of the natural assets — how they are extracted from the environment, how they are used in the community, and how they are returned to the environment as residuals.
The methodology of how the SEEA framework works are too detailed to discuss in this post. To understand more, you can do further reading here. But to show an example of how organizations around the world use the SEEA framework for national capital accounting, here’s a case study I found by the IDEEA Group and Natural Conservancy on mapping ocean wealth in Australia.
By quantifying natural assets and with better visualization, the SEEA framework can be used by world governments to make more accurate and informed management decisions. As of the 2020 Global Assessment of Environmental-Economic Accounting and Supporting Statistics, SEEA is implemented in 89 countries while 27 countries are already planning to implement.
Plus, international organizations like the European Commission, Food and Agriculture Commission of the UN, International Monetary Fund, Organization for Economic Cooperation and Development, and World Bank, also support the SEEA implementation.
Natural Capital Investments
Thanks to natural capital accounting, the powers-that-be now know where to direct their sustainable solutions. However, there can still be one major potential blocker to this — lack of financial support. Sometimes small to medium-scale businesses and local governments do not have enough means. Investors who’re into sustainable investments are the last piece of the puzzle.
Here are 3 examples of natural capital investment funds for ESG, impact, and sustainable investors out there:
#1. HSBC Pollination Climate Asset Management
Last year, the first large-scale fund for natural capital investments was launched. This joint venture was made possible between a banking company, HSBC, and a climate change advisory firm, Pollination Group. With the help of institutional investors and insurers, they aim to raise the capital to $1 billion for their diversified investment themes like:
- Sustainable agriculture
- Reforestation and forest protection
- Saving the ocean, marine life, and coastal restoration
- Wildlife protection and nurturing biodiversity
They’re also looking into a $2 billion carbon credit fund to reduce greenhouse gas emissions, the culprit of global warming. These are just the first in a series of investment funds that aims to make natural capital investing mainstream.
Mirova is an investment management company headquartered in France. They’ve been investing in sustainability since 2012. And now they have approximately 21 billion euros (as of March 31, 2021) worth of assets under management — 496 million euros of those are for natural capital investments.
When it comes to natural capital investing, they have 6 different strategies in action — Land Degradation Neutrality, Climate, Sustainable Ocean, Brazil Biodiversity, and AGRI3 strategies. During the Environment Finance Impact Awards 2020, the Sustainable Ocean and Brazil Biodiversity strategies were given recognition. Their Sustainable Ocean Fund closed at $132 million last year.
#3. Natural Capital Investment Alliance
This $10 billion investment fund in the making is an alliance among HSBC Pollination Climate Asset Management, Mirova, and Lombard Odier (a Swiss banking company that’s also into natural capital investing). The Alliance was announced earlier in January 2021 by Charles, Prince of Wales, as part of his Sustainable Markets Initiative. The three key founders will work together in bringing the natural capital niche into mainstream investing. In 2022, the Alliance fund will be mobilized for sustainable strategies.
Let’s Make Nature Count
Our natural resources are finite. No matter how vast and deep the oceans are, how thick the Amazon forest is, or how high up the sky is, they are limited. So, let’s make nature count.
And always remember, the little things you do count. Avoid taking more than enough from the environment, and reduce generating waste. And when possible, invest if you can in natural capital funds. Let’s join in with the environmental scientists, the economists, the business leaders, the government leaders, and the financial institutions in solving climate change.