Hi Andrew and thanks for reaching out. NACs, we argue, may have place but not as a climate-scale solution. Securitization of nature is a product of the same thinking that gave us ESG. Trading on share value is one strategy, but has it helped the eco-crisis? We're advocating a more direct route to engaging with "what's owed" to nature through stewardship vs. speculation. We call it the Untaken Safer Alternative to engage really big money differently. Just a different approach to the status quo. Good luck with IEG.
Hi Ian - thanks for the prompt response. Scale is the driving factor in building the new asset class of NAC's - as I understand it. Nations/Sovreign Wealth Funds/Pensions etc are anticipated to be the main 'investors' in NAC's. I'm sure there is more to be learned about this new set class that aligns with Nature Bank's Big Idea. I've been following Tim for a little while so have a limited grasp of the strategy to pivot to include climate/biodiversity/nature etc and raise the risk profile of pension funds. NAC's will need a bank - perhaps you could start talking with IEG about their banking needs - I'm sure the team there would be open to innovative thinking.
Watch for changes at The World Bank now that it's soon to be under new management (with a 'new' mandate?) that may create a 'template' for others to follow. Also Ralph Chami - AD at IMF - and his Rebalance Earth project. https://youtu.be/LfWTSQDzEgc
it's a fascinating idea! I'm trying to better understand the Bank of Nature approach and so please forgive what may be a stupid question.....
I think i understand the core philosophy - acting for, or even as, Nature, and seeking reparations for corporate externalities historically freeloaded onto ecosystems, funding recovery and restoration projects and building a more ecologically sustainable global business model.
But by shifting the interpretation of fiduciary duty to include these investments, as a necessity, or an obligation, won't there be an internal incompatibility created with the 'no net loss/preferably growth' requirements of the fund in terms of cash value? Many, perhaps most, repair and restore projects and programmes will be net costs on the fund because they are not designed to make an economic return, and in fact they will be operating quite rightly as a sort of debt repayment scheme to Nature. Will the balancing out of fiduciary actions within a fund end up putting pressure on these ecological interventions to generate profit, or at least reduce costs to net zero? This then starts to feel as if it is on the road to just designing new tradable asset classes under a Nature brand? I'm not sure that i've really understood the whole picture properly!
Hey Ian: Thanks for reaching out. I hope this adds some clarity and I’m happy to debate the details because they are important.
We’re not shifting fiduciary duty anywhere. Fiduciary duty is just fine – in fact, the pension promise, in particular, is a model for a social contract that could be a win for everyone. So, I'm focusing my reply on that.
We argue that fiduciaries of defined benefits plans are doing only half the job when they focus solely on ROI without reckoning how that ROI accrues damage to the future. At their scale as one of the largest aggregated players in the global economy, how fiduciaries earn ROI is relevant to everyone’s future.
They control tens of trillions in money that has a duty, literally, to do no harm.
Can they defend their compliance with that duty in a confrontation with their youngest beneficiaries owed a dignified retirement 30 years from now?
They have the scale to negotiate better and to do better. We think that means something other than stock-picking on Wall Street, growth and profit motive and other neoliberal economy linchpins. In a fiduciary economy, shaped by money vividly pinned to the future, we might see investments in enterprises that generate sufficient cash flows over the long-term to keep the pension promise viable, both financially and environmentally.
That puts fiduciary money to work in the way it was designed. Hope that helps.
Thanks Ian, i completely agree with what you say, and i think your ethical case is water tight! But my question really is that in using these funds to repair ecosystems, which is absolutely the right thing to do, and which fits precisely the definition of fiduciary responsibility you have set out, there will be a draw down in total capital because these projects cannot generate financial returns, or at least shouldn't be made to have to! So, can the industry accept that part of its fully explicit fiduciary obligation will bet at a net cost to its fund?
I don't accept the idea that repairing nature as a business is a "net cost" to a pension fund investor, because the projects don't generate financial returns.
There are plenty of nature-building enterprises uncapitalized because they don't fit a VC model of fast money and multiples and Wall Street bonanzas.
The fiduciary model is slow cash flow. We already have this model in the pension sector when the fiduciaries put money directly in real estate -- like shopping malls or commercial buildings. That's steady cash flow returns over decades.
Saying, for example, ESG is a drain on a fund's value is a conservative POV and a neoliberal trope. Here, we don't vouch for ESG or divestment because it assumes that value is created by trading share prices that represent an enterprise. It's too abstract. A direct investment in a shopping mall or a climate business that can return modest annual cash flow is a different/fiduciary way to engage big money in the economy. It's a different business plan that accounts for impacts to nature and the future.
Bank of Nature was created around the Q "Why is it not a cost of doing business to reinvest in nature?" I've long wondered how we can accumulate negative externalities and damage to the future without a penalty (like, say, a climate crisis). KPMG, in 2012, estimated 41 cents of every dollar of earning is "owed to nature" for the use of nature's resources. I think that sounds like a mortgage or rent in other lending contexts that come with terms and penalties.
If you're focussed on share value as an indicator of fiduciary performance, yes you might expect a loss in share value if the world wakes up to this "debt to nature." Apple, for example, still makes billions in net, btw, in that scenario.
But there are many other ways to make a return necessary to keep a pension fund viable into a climate-changed future without exacerbating that climate insecurity. A 40% shift of corporate wealth to a proxy for nature would be a major correction reflected in the markets. Whether that happens voluntarily or through some climate event that takes value out of the market is a fiduciary choice. It's certainly not managing risk in a way that reflects the actual crisis.
There are tens of trillions of public pension money gambled on Wall Street for fast money gains that come at a cost to the future. This is non fiduciary. Corporations that pay back nature for the cost of doing business are fiduciary enterprises. I think public pension fiduciaries doing their job as a public good curating a future for their own beneficiaries (including taxpayers) must think differently about loss as more than financial. There are fiduciary minimums, yes, but we don't need to extract wealth for the sake of it.
Also, if we're successful in adapting fiduciary duty standards to be explicit about the role of fiduciary money in the global economy, it's not a voluntary/moral choice for fiduciaries to accept or not accept changes to how they move money. It's legal. So, there's that, too.
If I were a Chief Sustainability Officer with the CEO's ear in a business that relied on pension sector money for vital operations, I'd want to flag the possibility that the business might not qualify as an option for fiduciaries long term if we don't fit a fiduciary-grade investment profile. You make changes, you find new investors, or you correct for the loss of investment -- and do something different. That strikes me as incentive to think differently about what's acceptable.
Thanks Ian, that's very helpful. I just don't trust financial institutions! In the end they seem to be able to lobby and manoeuvre to some other neocon safe space once loosed from the last! Either Corporate Indulgencies (paying offsets) or yet another way to commoditise nature on the back of weak regulation. ESG is becoming a set of asset classes derived from the metric-dominated vision of ecosystems, even more so BNG (Biodiversity Net Gain), and it will i think inevitably morph into rebranded but conventionally extractive investment machinery.
I really like the way you talk about repaying a debt to nature, acknowledging the colossal buffering services that the non-human world has provided to profit. If this repayment could become an absolutely obligatory entry on any fund balance sheet (maybe driven by the insurers?), that would be a spectacular win and i very much hope that you succeed!
Nature Bank would make a good companion to the new asset class of Natural Asset Companies - coming to you soon via IEG & NYSE
https://www.intrinsicexchange.com
Hi Andrew and thanks for reaching out. NACs, we argue, may have place but not as a climate-scale solution. Securitization of nature is a product of the same thinking that gave us ESG. Trading on share value is one strategy, but has it helped the eco-crisis? We're advocating a more direct route to engaging with "what's owed" to nature through stewardship vs. speculation. We call it the Untaken Safer Alternative to engage really big money differently. Just a different approach to the status quo. Good luck with IEG.
Hi Ian - thanks for the prompt response. Scale is the driving factor in building the new asset class of NAC's - as I understand it. Nations/Sovreign Wealth Funds/Pensions etc are anticipated to be the main 'investors' in NAC's. I'm sure there is more to be learned about this new set class that aligns with Nature Bank's Big Idea. I've been following Tim for a little while so have a limited grasp of the strategy to pivot to include climate/biodiversity/nature etc and raise the risk profile of pension funds. NAC's will need a bank - perhaps you could start talking with IEG about their banking needs - I'm sure the team there would be open to innovative thinking.
Awesome. Thanks for the idea.
Watch for changes at The World Bank now that it's soon to be under new management (with a 'new' mandate?) that may create a 'template' for others to follow. Also Ralph Chami - AD at IMF - and his Rebalance Earth project. https://youtu.be/LfWTSQDzEgc
it's a fascinating idea! I'm trying to better understand the Bank of Nature approach and so please forgive what may be a stupid question.....
I think i understand the core philosophy - acting for, or even as, Nature, and seeking reparations for corporate externalities historically freeloaded onto ecosystems, funding recovery and restoration projects and building a more ecologically sustainable global business model.
But by shifting the interpretation of fiduciary duty to include these investments, as a necessity, or an obligation, won't there be an internal incompatibility created with the 'no net loss/preferably growth' requirements of the fund in terms of cash value? Many, perhaps most, repair and restore projects and programmes will be net costs on the fund because they are not designed to make an economic return, and in fact they will be operating quite rightly as a sort of debt repayment scheme to Nature. Will the balancing out of fiduciary actions within a fund end up putting pressure on these ecological interventions to generate profit, or at least reduce costs to net zero? This then starts to feel as if it is on the road to just designing new tradable asset classes under a Nature brand? I'm not sure that i've really understood the whole picture properly!
thanks,
Ian Boyd
Hey Ian: Thanks for reaching out. I hope this adds some clarity and I’m happy to debate the details because they are important.
We’re not shifting fiduciary duty anywhere. Fiduciary duty is just fine – in fact, the pension promise, in particular, is a model for a social contract that could be a win for everyone. So, I'm focusing my reply on that.
We argue that fiduciaries of defined benefits plans are doing only half the job when they focus solely on ROI without reckoning how that ROI accrues damage to the future. At their scale as one of the largest aggregated players in the global economy, how fiduciaries earn ROI is relevant to everyone’s future.
They control tens of trillions in money that has a duty, literally, to do no harm.
Can they defend their compliance with that duty in a confrontation with their youngest beneficiaries owed a dignified retirement 30 years from now?
They have the scale to negotiate better and to do better. We think that means something other than stock-picking on Wall Street, growth and profit motive and other neoliberal economy linchpins. In a fiduciary economy, shaped by money vividly pinned to the future, we might see investments in enterprises that generate sufficient cash flows over the long-term to keep the pension promise viable, both financially and environmentally.
That puts fiduciary money to work in the way it was designed. Hope that helps.
Thanks Ian, i completely agree with what you say, and i think your ethical case is water tight! But my question really is that in using these funds to repair ecosystems, which is absolutely the right thing to do, and which fits precisely the definition of fiduciary responsibility you have set out, there will be a draw down in total capital because these projects cannot generate financial returns, or at least shouldn't be made to have to! So, can the industry accept that part of its fully explicit fiduciary obligation will bet at a net cost to its fund?
I don't accept the idea that repairing nature as a business is a "net cost" to a pension fund investor, because the projects don't generate financial returns.
There are plenty of nature-building enterprises uncapitalized because they don't fit a VC model of fast money and multiples and Wall Street bonanzas.
The fiduciary model is slow cash flow. We already have this model in the pension sector when the fiduciaries put money directly in real estate -- like shopping malls or commercial buildings. That's steady cash flow returns over decades.
Saying, for example, ESG is a drain on a fund's value is a conservative POV and a neoliberal trope. Here, we don't vouch for ESG or divestment because it assumes that value is created by trading share prices that represent an enterprise. It's too abstract. A direct investment in a shopping mall or a climate business that can return modest annual cash flow is a different/fiduciary way to engage big money in the economy. It's a different business plan that accounts for impacts to nature and the future.
Bank of Nature was created around the Q "Why is it not a cost of doing business to reinvest in nature?" I've long wondered how we can accumulate negative externalities and damage to the future without a penalty (like, say, a climate crisis). KPMG, in 2012, estimated 41 cents of every dollar of earning is "owed to nature" for the use of nature's resources. I think that sounds like a mortgage or rent in other lending contexts that come with terms and penalties.
If you're focussed on share value as an indicator of fiduciary performance, yes you might expect a loss in share value if the world wakes up to this "debt to nature." Apple, for example, still makes billions in net, btw, in that scenario.
But there are many other ways to make a return necessary to keep a pension fund viable into a climate-changed future without exacerbating that climate insecurity. A 40% shift of corporate wealth to a proxy for nature would be a major correction reflected in the markets. Whether that happens voluntarily or through some climate event that takes value out of the market is a fiduciary choice. It's certainly not managing risk in a way that reflects the actual crisis.
There are tens of trillions of public pension money gambled on Wall Street for fast money gains that come at a cost to the future. This is non fiduciary. Corporations that pay back nature for the cost of doing business are fiduciary enterprises. I think public pension fiduciaries doing their job as a public good curating a future for their own beneficiaries (including taxpayers) must think differently about loss as more than financial. There are fiduciary minimums, yes, but we don't need to extract wealth for the sake of it.
Also, if we're successful in adapting fiduciary duty standards to be explicit about the role of fiduciary money in the global economy, it's not a voluntary/moral choice for fiduciaries to accept or not accept changes to how they move money. It's legal. So, there's that, too.
If I were a Chief Sustainability Officer with the CEO's ear in a business that relied on pension sector money for vital operations, I'd want to flag the possibility that the business might not qualify as an option for fiduciaries long term if we don't fit a fiduciary-grade investment profile. You make changes, you find new investors, or you correct for the loss of investment -- and do something different. That strikes me as incentive to think differently about what's acceptable.
Happy to hear rebuttals or challenges. Thanks! ie
Thanks Ian, that's very helpful. I just don't trust financial institutions! In the end they seem to be able to lobby and manoeuvre to some other neocon safe space once loosed from the last! Either Corporate Indulgencies (paying offsets) or yet another way to commoditise nature on the back of weak regulation. ESG is becoming a set of asset classes derived from the metric-dominated vision of ecosystems, even more so BNG (Biodiversity Net Gain), and it will i think inevitably morph into rebranded but conventionally extractive investment machinery.
I really like the way you talk about repaying a debt to nature, acknowledging the colossal buffering services that the non-human world has provided to profit. If this repayment could become an absolutely obligatory entry on any fund balance sheet (maybe driven by the insurers?), that would be a spectacular win and i very much hope that you succeed!