The case for integrating natural capital and biodiversity in the investment process

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© Joey Kyber

“Investors, companies, policymakers, and civil society are beginning to realize the need to better value and manage these resources as we see the negative impacts natural capital issues, such as climate change, water scarcity, and ocean health, can have on our lives and our investments”, says Matt Orsagh, CFA, CIPM, Former Senior Director, Capital Markets Policy, CFA Institute.

With his report Integrating natural capital and biodiversity in the investment process Matt Orsagh introduces investment professionals to the key concepts of natural capital.

He highlights some of the educational resources available, and helps investment professionals to begin to develop their own frameworks for properly integrating natural capital into the investment process.

“The effects of natural capital issues, such as climate change, mineral use, and water rights, are often systematic in nature, presenting investors with “unhedgeable risks.”

Matt Orsagh, CFA, CIPM
Former Senior Director, Capital Markets Policy
CFA Institute

“Any discussion of natural capital leads to a discussion of the planetary boundaries of the natural world, such as climate change, land use change, and ocean acidification, that serve as canaries in the coal mine for humanity to help us understand how we are or are not adequately managing the natural world. We have already breached the “safe levels” of many of the nine planetary boundaries, a dangerous harbinger for the survival of our markets and even the viability of the society in which we live”, outlines Orsagh.

“Although the necessary data to better understand natural capital and its impact on society exist, such data are rarely presented in an investor-friendly format and often require an understanding of multiple natural capital issues. To better integrate natural capital into the investment process, investors will have to take the data and research pioneered in the scientific and academic communities and make these data fit for investment purposes”, adds Orsagh.

In the report Orsagh also addresses the challenges of “green growth,” often seen as a kinder, gentler form of capitalism that simply replaces dirty inputs (fossil fuels) with “green” ones, such as renewable energy. Such an oversimplification of the challenges of energy production and transportation fails to address the problems that remain in the system when you switch from one unsustainable form of development to another unsustainable form of development. The tension between a business as-usual economic framework and a green growth framework is addressed by the emerging issue of degrowth. The degrowth movement advocates moving away from the “growth for growth’s sake” ethos exemplified by using GDP as a scorecard for human progress, focusing instead on human well-being and the sustainability of our economic system.

 

 

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