Laurent Ramsey has been a managing partner of the Pictet Group since 2016.
Humans are driving animal and plant species to extinction and destroying their habitats to feed an ever-increasing population. Biodiversity protection is now a priority that policy makers consider as urgent as halting global warming. At the UN COP15 biodiversity summit in Montreal in December, governments are expected to agree on groundbreaking targets to protect nature.
But such discussion should not be confined to the policy arena. The financial industry, too, must play a more active role. As a steward of global capital, investors are uniquely positioned to help build an economy that works with, rather than against, nature.
This is in line with investors’ interest, too. Of course, protecting our environment is important. But this is also an economic and financial issue.
It’s called natural capital: water, soil, minerals, etc. We use them, whether directly or indirectly, to make capital goods, such as roads, machines, buildings, factories and ports. And we have been doing so at a blistering rate.
Data show that, in the period 1992-2014, the amount of capital goods generated per person doubled. Over the same time frame, the world’s stock of natural capital – water, soil and minerals – per person declined by nearly 40 per cent.
By channelling investment to companies developing advanced environmental technology and services, the financial industry has helped improve efficiency in areas such as energy use, agriculture, trade and transport. For example, thanks to the development of agritech, the world can produce almost three times as much cereal from a given amount of land as it did in 1961.
But greater efficiency – welcome as that would be – is unlikely to be enough. We need to recognize that there is a need to tangibly measure and attach a value to nature’s contribution to the economy.
The U.S. government has recently unveiled a plan to embed natural capital in the national balance sheet and in official U.S. economic statistics, such as GDP, by 2036. The proposal says natural assets are currently omitted from the national balance sheet despite being a core asset class within the country’s macroeconomy – a problem they describe as one of “GDP’s well-known blind spots.”
Across Canada, the University of Waterloo’s Intact Centre on Climate Adaptation, working with KPMG and the non-profit Municipal Natural Assets Initiative, has also called for a revamp of accounting rules to recognize the financial value provided by natural assets.
In the future, accounting for natural capital on balance sheets could transform the way investors assess return on investment of an asset class and identify new opportunities. As the renowned management consultant Peter Drucker said: “What gets measured, gets improved.”
Investors, in particular, can play a crucial role by helping to shift capital flows away from businesses and projects that degrade the natural environment and toward nature-positive solutions.
The Food and Land Use Coalition, an international consortium, estimates that efforts to transform current food and land use in favour of regenerative and circular practices have the potential to create a biodiversity market worth US$4.5-trillion by 2030.
Nature has always been the economy’s most important asset. It is time the finance industry recognized that.
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