As the global leaders negotiate developing an UN-operated carbon market at COP28, the New York Stock Exchange is eyeing establishing a “natural asset” exchange, described as a new take on ESG.
Known as Natural Asset Companies (NACs), the new companies, which have attracted negative responses from Republican lawmakers and property rights advocates, could see NYSE-listed companies trade on ecosystems by managing, maintaining, and restoring public and private land.
Launched by the US fund manager Intrinsic Exchange Group, it has the backing of the NYSE and the Rockefeller Foundation. It claims it gives investors interested in preserving nature a place to put their money.
The NACs could also enter international financial markets, with Costa Rica and the Inter-American Bank expressing interest in using the mechanism.
According to IEG Chair Douglas Eger, NACs represent a new private-sector approach to ecosystem management that “wasn’t dependent on policy, it wasn’t dependent on traditional taxes, regulation or philanthropy to price in these assets and allow investors to invest directly in nature.”
He has compared the approach to improvements on public lands to a mining claim, a timber lease or utilising air rights on private lands.
Interest in ecosystems is booming, with Wood Central reporting in October that interest in “nature capital” has seen global investors look to production forestry for “large-scale sustainable investment with compelling risk-adjusted returns.”
Instead of a lease to harvest trees, NACs would ink agreements granting them “ecological performance rights” – and could see the carbon generated from a conserved forest being valued higher than the carbon additionality generated from a managed forest.
This process, known as “carbon avoidance,” has led political leaders and economists to speculate that conserved forests could be more valuable than managed forests with a change to carbon methodologies.
Where an investment in a productive forest could result in the harvest of timber sold into a supply chain, the value of the ecological rights is judged on a series of factors, ranging from carbon storage and sequestration data to more ephemeral qualities like the “sensory benefits.”
That detail has led sceptics to target the scheme because they claim big finance would profit from monetising nature that belongs to everyone.
“This is creating this whole new category and monetising things that nobody has a right to own,” said Margaret Byfield, the executive director of the American Stewards of Liberty, who spoke to Politico overnight.
The Biden administration has indicated it is interested in identifying the value of “natural capital” and its contribution to the nation’s economy.
In May, President Biden released a 15-year plan to account for the value of natural assets like minerals and clean water, as well as the impacts of climate change and biodiversity loss.
“The nation’s economy and environment are deeply intertwined,” the White House wrote at the time, “a strong economy depends on a stable climate, clean air and water, and all nature has to offer.”
“We have taken it for granted, but we can no longer afford to do so,” a White House document, which briefly mentions the NYSE’s proposal.
According to Larry Harris, who from 2002-2004 served as the SEC’s top economist, “this is another ESG story, with a heavy emphasis on environmental sustainability.”
He said there is a massive market for people who want to take positions on the environment. He said, “People would like to commit their capital in a forward-thinking way about natural resources and their preservation.”
However, “the potential investment value of these companies, from the point of view of an investor who is only interested in financial return, is probably not all that good,” Harris said.
Mr Harris said another complication is the environmental statements and audits these companies would be required to produce — a potentially significant expense.
The challenge is to “give investors confidence that they’re not rapaciously destroying the planet or the environment,” especially where trust in schemes like REDD+ is relatively low.
Mr Eger pushed back against that analysis, arguing that NACs will create a return on investment because individuals choose to value the environment and sustainable timber or agriculture production.
“There’s no reason we can’t set a price to ecosystem service,” Eger said.
“Between a willing buyer and seller, the underlying becomes true. If they think that value is there, then it is there,” he said, comparing the idea to “the price of paintings or gold.”
He added that while some of the lands have an existing “production value,” whether because of agricultural or other uses, investors in NACs are supporting an “existence or appreciation value” of the benefits of those lands, like support for biodiversity or natural beauty.
“We just happened to leave a lot of this off the table when we created the economic system that we have right now,” he said.
