A conversation with Douglas Eger, CEO and founder of Intrinsic Exchange Group, about how to value nature and make it the centre of our economy and not some non-calculated externalities, and more.
LISTEN TO THE CONVERSATION ON:
Talking about how to value nature in finance is a massive conversation, but because of tech issues we only managed to scratch the surface! So stay tuned for part two of this conversation: we will be digging much deeper.
THE UNDERLYING PROBLEM LEADING TO EXTRACTION
Douglas argues that nature is fundamental and we’re putting at risk the ability to live on the planet and to have an effective economy and on the other side, we’re leaving off what would be doubling the economic output if we included nature’s value into it. A rewiring of the system is needed to take in those data points. The natural, human and social capital is missing from the equation.
“I like to say we may dream green, but we live our lives with the red and black of financial statements on a personal level, on a corporate level and on a governmental level. And if we don’t rewire that and change the equation, it’s very difficult to really make lasting effective change.” – Douglas Eger
“The goods and services that we consume worldwide are equal to or greater than the world industrial GDP. And half or more of our economy is dependent or highly dependent on those ecosystems functioning.” – Douglas Eger
“I think the fundamental is that we left nature out of the mainstream of the economy because we didn’t see it as a resource. It was actually, we built a very effective economic system for extraction, and the capital formation and the incentive was to make things efficiently and effectively. Nature was looked at as an abandoned resource that maybe even needed to be tackled. It was in the way and it didn’t have direct value.” – Douglas Eger
NATURAL ASSET COMPANIES
What Douglas and his team did at Intrinsic Exchange Group was to get back to the foundational level by creating a new asset class based on nature itself. The main underpinning to this is a new form of corporation, a natural asset company. These companies are chartered to protect, to grow, to restore natural assets. They obtain the rights to the ecological value on a given landscape rewarding those who have been good stewards. They’ve converted the asset from potential value to financial capital.
“We created a new accounting system, which we called Statements of Ecological Performance, which account for the flow of ecosystem services in financial terms.” – Douglas Eger
“If we can convert those natural assets into financial capital, then we have the capital and price signaling to be able to tell the economy what we wanted to produce and how we wanted to produce it.” -Douglas Eger
“Think of that as your natural income statement. The asset that produces those ecosystem services that are consumed around the world worth over a hundred trillion dollars a year, and we included some biophysical measures like biodiversity species richness, and we said we want investors to be able to look at both of those, and determine what the value of not only priced earnings or priced to revenue, but price to ecosystem service.” -Douglas Eger
INVESTORS WILLING TO INVEST BUT NOT REALLY ABLE TO DIFFERENTIATE
According to Douglas many investors say ‘if I could invest in a forest, if I can invest in a coral reef, I would love to do that, and I could get a return, fantastic.’ Douglas and his team have been testing this and suggest an accounting framework and a value proposition for the investors. Some of them might be impact investor, but they don’t really know that, as in some cases, they aren’t able to differentiate.
“The investors are saying ‘we’re desperate to match up our financial returns with our environmental and social ethics, and we can’t do that at scale.’ So we have these major funds that are essentially doing negative screening, right? So, what they’re doing is saying, ‘Okay, I won’t invest in fossil fuels or mining or timbering. But then everyone else’s portfolio looks pretty much the same.’ – Douglas Eger
“If we take something and move it from producing X amount of ecosystem services to two x, to three x to four x, and that’s the value increase in your equity. Are you comfortable with that? Does that make sense to you? Can you buy off on that value proposition?”. – Douglas Eger
OTHER POINTS DISCUSSED:
Koen and Douglas also talked about
- Human made disasters
- Ecosystem services
- Charles Eisenstein – Money or ecology: investors have to make a choice on which master they serve
- Satish Kumar – Be humble, you can’t outsmart nature
- Cameron Frayling on what is needed to unlock biodiversity credits
Feedback, comments, suggestions? Reach me via Twitter @KoenvanSeijen, in the comments below or through Get in Touch on this website.
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The above references an opinion and is for information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.