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Felicity Bradstock

Felicity Bradstock

Felicity Bradstock is a freelance writer specialising in Energy and Finance. She has a Master’s in International Development from the University of Birmingham, UK.

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Could “Natural Asset Companies” Transform Environmental Finance?

  • The concept of "natural asset companies" aims to assign monetary value to ecosystems, potentially attracting investment in environmental preservation projects.
  • While proponents see this as a way to bring environmental assets into the financial mainstream, critics raise concerns about privatization of public land and exploitation of natural resources.
  • Despite withdrawal of the proposal by the NYSE, discussions continue, highlighting the growing interest in leveraging financial markets to address environmental challenges and spur green transition initiatives.
NYSE

While governments worldwide are getting behind the green transition, pumping billions in public funds into green energy and clean tech, most investors seem uninterested in protecting the environment unless they can turn a profit. Now, the U.S. Securities and Exchange Commission (SEC) is debating whether to assign monetary value to ecosystems to encourage greater investment in their protection. The idea is that monetising certain aspects of nature could encourage investors to finance a wide range of projects that would help protect and improve the environment. However, critics say that natural public assets should not be monetised, and the move could open the door to foreign investment in federal lands, which is not viable. 

If the SEC decides to move forward with the new categorisation, the New York Stock Exchange (NYSE) could soon offer a new kind of investment known as “natural asset companies,” or NACs. The financial services firm Intrinsic Exchange Group (IEG) came up with the concept around two years ago, gaining support from the NYSE and the Rockefeller Foundation. The firm hopes that the move will provide those interested in environmental preservation with a place to invest. In 2023, the NYSE proposed the idea of listing companies that focus on the protection of ecosystems on private and public land to give them a monetary value to promote investment in environmental initiatives. 

The Chairman of IEG, Douglas Eger, explained, “We were looking for a private-sector approach that wasn’t dependent on policy, it wasn’t dependent on traditional taxes, regulation or philanthropy to price in these assets and give investors the opportunity to invest directly in nature, whether that’s for climate or biodiversity.” 

To date, the proposal has not gained much traction. However, republican politicians have voiced their concerns about the move. Several worry that creating this new categorisation could provide a loophole in the investment in public land and allow foreign investors to fund projects on federal lands, which has not previously been permitted. Others are fearful that it would encourage companies to seek to make a profit by monetising publicly owned natural resources. Margaret Byfield, the Executive Director of the American Stewards of Liberty, a property-rights-focused organisation, stated “This is creating this whole new category and monetizing things that nobody has a right to own.” 

To qualify as a natural asset company, a corporation would have to give evidence to demonstrate how it is improving the land it owns. An NAC would be responsible for the “conservation, restoration, or sustainable management” of the land in question, and would have to establish clear green targets, such as improving wildlife habitats or enhancing air quality. The NYSE suggested in its proposal that this could end “the overconsumption of and underinvestment in nature” by “bringing natural assets into the financial mainstream.” 

In January, the NYSE withdrew its proposal to the SEC for “natural asset companies” without providing a reason for doing so. However, Utah State Treasurer Marlo Oaks released a statement praising the move. Oaks stated, “Under the proposal, private interests, including foreign-controlled sovereign wealth funds, could use their capital to purchase or manage farmland, national and state parks, and other mineral-rich areas and stop essential economic activities like farming, grazing, and energy extraction.” Nevertheless, the proposal has opened the door for discussion around the potential for monetising nature to encourage investment in environmental preservation. Following the proposal, proponents of the move are developing prototypes in the private markets to establish a suitable model. 

To date, nature has only been assigned a monetary value if it can be used to create value in some way. For example, by cutting down trees to make products or to be mined for valuable metals and minerals. Yet, as governments push for a green transition and private companies show greater interest in green energy, clean tech and related industries, the value may be seen in preserving natural spaces. If forests are kept intact, they can help reduce emissions by sucking CO2 from the atmosphere. Trees can also protect soil from heavy rain and create shelter, helping to ensure the drinking water supply. 

Governments worldwide have begun to invest in environmental projects by introducing climate initiatives to collect funds for such projects. This includes schemes such as carbon taxes. However, existing schemes are limited to emissions reduction through offsetting programmes, which overlooks other environmental burdens such as erosion, habitat degradation and other issues that can have a knock-on effect. For example, if companies continue to build on flood plains they can increase the risk of flood in a region, particularly as climate change continues to exacerbate severe weather events. 

The inclusion of natural asset companies in the NYSE could help the U.S. protect its natural assets, supporting a green transition as well as potentially protecting wildlife and human life. The monetisation of nature could encourage greater investment in long-overlooked environmental issues. This move could also encourage other countries to do the same, spurring change at the international level. However, it is important to understand the potential implications of monetising nature and ensure there are adequate regulations in place to manage the sector.

By Felicity Bradstock for Oilprice.com

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