Nature’s cranky banker and foreclosure
The case for a Bank of Nature
Injecting sustainability with some imagination, envision for just a moment a power lunch with Janet Yellen, former chair of the US Federal Reserve and potential Secretary of the Treasury, and Mother Nature, chair of our natural capital reserve – a bank of a different sort.
Between courses, conversation might start with how interest rate hikes affect corporate debt holdings. It might then shift to humanity’s continuing delinquency in repaying its debt to the environment.
“I looked for the tell tales like employment and spending as proof that the economy was healthy, especially after the 2008 financial crisis,” says Imaginary Yellen over a bite of arugula.
“I only wish changes at Nature Bank warranted a scintilla of the attention you get,” says Nature Personified, sipping a fair trade coffee. “I’ve been way too easy on the deadbeat borrowers.”
Creative license aside, the state of our investment in sustainability would be far more evolved if industry was as attuned to changes in lending policy from our finite natural resources as it is in wondering aloud when the Fed will put a crimp in cheap debt. The fact that we don’t have a banking-like relationship with nature is a missing link in the sustainability debate.
In 2012, Corporate Eco Forum and The Nature Conservancy published a tally: Nature produces $72 trillion worth of goods and services for the global economy every year through its water, soils, minerals and other natural assets. The report, called Valuing Natural Capital, cites the 2012 KPMG estimate that if companies had to pay for their own environmental bills, they would lose 41 cents for every $1 in earnings. Imagine the power of 41 cents of every $1 of earnings reinvested in nature.
The World Wildlife Fund, in its April 2015 report Reviving the Oceans Economyvalued the oceans at $24 trillion.
“The oceans are our ‘natural capital’—a global savings account from which we keep making only withdrawals,” explains Brad Ack, Senior Vice President for Oceans at WWF “To continue this pattern leads to one place: bankruptcy. It is time for significant reinvestment and protection of this global commons.”
Regardless whether you believe the accounting methodology or not, the numbers are big – perhaps, too big to fail. Equate sustainability with the global financial crisis and perhaps we can innovate more effective responses to issues like climate change, biodiversity loss and resource scarcity. How might we recast sustainability as a global bail out?
If nature is like a bank, then we are borrowing without understanding the terms or planning a repayment schedule. Extend the metaphor and, in many ways, the impacts associated with our global sustainability challenge might be explained as penalties for default, or even foreclosure.
Business borrows everyday, negotiating terms and payback and writing down the interest paid on that debt as a cost of doing business. How is the debt to nature different? You wouldn’t go into a relationship with a banker without an expectation of repaying a loan. You would expect penalties if you failed to live up to the contract.
Think of the impacts of sustainability like extreme weather and rising tides in terms of late fees. Might Super Storm Sandy have been a debt collector or repo man? By returning rent, annuities or dividends to nature, we might avoid default.
Just how we might calculate this ROI is a creative process that has yet to take place.
Reinvestment: We might look at reforestation as a way that timber companies have replenished stocks. Whether that is a form of agriculture or repayment is a matter of debate. The point is that reforestation is a cost of doing business for long-term resource maintenance.
As a different example, 37 fish populations were rebuilt from 2000 to October 2014 because of the Magnuson-Stevens Fishery Conservation and Management Act, says Pew Charitable Trusts.
Companies that extract non-renewable resources are, of course, not going to put them back in a kind of one-for-one model. In this case, perhaps there is a proxy: value-for-value. If a company extracts a non-renewable resource, what substitute reinvestment in nature works? Or, can a company in a degenerative industry (nature-busting) use what it would pay in its debt to nature to transition to a regenerative model (nature-building)?
Offsets: Carbon offsets offer an interesting market-based model. A payment to nature might be based on an offset formula that trades carbon-boosting behavior for an investment in projects that scrub carbon from the environment. For every $1 of degradation of nature, a $1 of restoration goes back. Since we’re in such a nature bank deficit, maybe we slap on a payback premium (say, $1.41, to echo KPGM’s estimate, for every $1 of extraction) for the near term.
Surcharges: A price on carbon will work toward scrubbing nature of greenhouse gases – and require polluters to pay their share of negative externalities. Perhaps there is a way to extend this to a dividend or annuity paid to nature’s bank.
A revenues royalty might also be model. The organization 1% for the Planet collects 1% of revenues from participating companies to remit funds to philanthropic causes. It’s not a big leap to see how a surcharge on corporate revenues could be used to pay nature some return for the privilege of doing business. The idea that nature extracts value out of business provides an interesting reversal of fortune – or conjures images of a shakedown from angry, impatient, threatening creditors.
Then, we need to figure out who sets the rules, handles the remittances, authenticates claims, ensures compliance, redistributes the funds, penalizes the deadbeats and forecloses. Suddenly, we’re talking about something that sounds exactly like a bank. Worthy of a debate in sustainability is whether we have been discharged from our obligation to pay nature anything and what are the consequences, as happens in regular business transactions, if we haven’t.
Banks are in a position to expect more from their borrowers. There is no such lending environment for natural capital. If there were, maybe we would get to keep our house.
Ian Edwards is a sustainability consultant.