#SRI — 08.07.2021

Natural Capitalism: Succession Planning for the Planet

Arnaud Tellier, CEO APAC, BNP Paribas Wealth Management


There is an unmistakable cultural shift taking place worldwide: environmental awareness is changing attitudes about everything from travel and cuisine to investment and financing. This process has accelerated during the covid-19 pandemic, which has focused attention even more closely on the future of the planet – and on the need for governments, businesses and individuals to act in order to limit climate change.

Today, we see biodiversity – or what is called natural capital in financial circles – beginning to attract the same kind of attention as climate change. Increasingly, the growing ranks of asset managers that invest in line with environmental, social and governance (ESG) principles will demand that companies disclose their impacts on nature. Ultimately, they will expect companies to pay a price for their consumption of “externalities” like soil and water that reflects their true value. This “natural capitalism” approach has the potential to dramatically impact business models – and valuations.

Natural Capital and Biodiversity

Simply put, natural capital is the planet’s stores of environmental assets such as geological reserves, soil, air, water and living organisms. [1] Humankind today consumes the planet’s natural capital 1.75 times faster than it can regenerate itself – our ecological footprint is currently 1.75 planet earths [2], which is clearly unsustainable. Yet more than half of the world’s Gross Domestic Product (GDP), or about US $44 trillion (S$58 trillion), depends on natural resources of some kind. [3]

As we exploit nature for food and industrial materials, humans are harming the biodiversity that is essential to planetary health. Intensive agriculture drives habitat destruction and threatens microorganisms, insects and plant varieties. Population growth and rapid urbanisation are hastening demand for food and consumer products in developing countries, accelerating our destruction of the planet’s resources.

Here in Asia-Pacific, we have 17 of the world’s 36 biodiversity hotspots and more than half of the world’s remaining fertile mangrove areas. These support more than 28 per cent of aquatic and semi-aquatic species, 37 per cent  of which are threatened by overfishing, pollution, infrastructure development and invasive alien species. In Asia, as with the entire globe, this situation is unsustainable: action is required to restore the planet’s equilibrium.[4] And for action to be taken, we need to be able to quantify the true value of natural resources so that we can finance their restoration.

Fixing the Damage

Efforts that are already under way to restore biodiversity loss illustrate the complexities of the challenge. For example, the mangrove forests of Myanmar’s Ayeyarwady Delta form a barrier between land and sea that prevents flooding, as well as housing a fertile ecosystem which supports wildlife and maintains a fishing industry. But 60 per cent of the mangroves have been lost to rice plantations and human settlement, leading the UN’s Global Environment Facility to fund a five-year project to restore the region’s lost natural resources.[5]

Such projects could be initiated on a larger scale in more areas with high-value natural capital, but funding remains a hurdle: the growing trend for green financing to decarbonise the atmosphere is not making a direct impact on natural capital and biodiversity destruction. One reason is that we do not yet view our natural capital as an asset with a quantifiable value, despite our reliance on it. Another is that projects to remediate damage to ecosystems are long-term and expensive – but investors are accustomed to realising a return on their commitments over shorter, more predictable timeframes.

Conventional green financing in public markets relies on an accurate valuation of assets and tends to come with tenors of three to 30 years. And while philanthropic organisations have been active for decades in promoting nature conservation, their efforts are not enough. Initiatives are under way to tackle the valuation challenge with projects like the Natural Capital Protocol, a global and standardised framework to measure and value impacts and dependencies on natural capital which will inform organisational decisions.[6]

New Models and Methods

Recognising the urgent need to take action, the World Economic Forum has designated 2021 to 2030 as the Decade on Ecosystem Restoration. It expects business opportunities worth US$60 trillion to emerge over this period from the drive to reverse ecosystems damage,[7] and US $2 trillion a year of investments will be needed to restore aquatic, terrestrial and  urban ecosystems.[8] It is clear that natural capitalism, while requiring new ways of thinking and of valuing the environment, presents opportunities as well.

With investors actively seeking exposure to companies with strong ESG credentials, companies that engage in activities promoting long-term biodiversity preservation – or even restoration – have an opportunity to become investment champions. Recent evidence that they may be more resilient in times of disruption adds to their attraction.[9] In this way, biodiversity impact will become a key factor in corporate ESG disclosures. Indeed, the “mainstreaming” of biodiversity disclosure standards creates the potential for new indices and funds with a specific focus on corporations that have strong natural capital credentials.

Natural Capitalists

BNP Paribas Wealth Management’s research reveals that high net-worth investors, especially those from younger generations, show more interest than their parents to achieve something greater than just growing their wealth.

Younger generations are the entrepreneurs of the future: 62 per cent  of young wealth-holders surveyed in Asia last year were business owners, while 24 per cent  have diversified into asset management or alternative investments, and 15 per cent  into technology. Many own more than one business, with some active across as many as seven industries. All are involved in investing the family’s wealth: 63 per cent  “actively involved” and 37 per cent  as part of an investment team.[10]

Roughly half of these “Next Gens” are engaged in sustainable (51 per cent ) and impact (48 per cent ) investing. In 2019, about two-fifths of family offices in APAC were engaged in sustainable investing, and a quarter in impact investing.[11] But tellingly, they want better information on how to value opportunities. They regard this activity as a business, not philanthropy. They are natural capitalists, seeking a return on their investments.[12]

As sustainable markets evolve, developing new valuation standards and products in both public and private markets, opportunities to invest in restoring natural capital and biodiversity are likely to become more accessible. It all makes sense when we begin to regard nature as a common asset that needs to be maintained through ongoing funding. Perhaps we should think of this process as a new kind of succession planning, returning the Earth to a sustainable, productive state with the potential to thrive indefinitely. What better investment could there be?

[1] https://naturalcapitalforum.com/about/

[2] https://www.footprintnetwork.org/resources/data/

[3] https://sponsored.bloomberg.com/news/sponsors/morgan-stanley/the-business-case-for-sustainable-investing/?adv=6713&prx_t=7g8CAFtsFAt_sQA&ntv_fr

[4] http://www.fao.org/state-of-biodiversity-for-food-agriculture/en/

[5] http://www.fao.org/myanmar/news/detail-events/en/c/1301730/

[6] https://capitalscoalition.org/capitals-approach/natural-capital-protocol/?fwp_filter_tabs=training_material

[7] https://www.weforum.org/reports/new-nature-economy-report-ii-the-future-of-nature-and-business

[8] ibid

[9] https://www.ey.com/en_gl/financial-services-emeia/three-ways-esg-factors-can-make-portfolios-more-resilient-post-covid-19

[10] https://wealthmanagement.bnpparibas/asia/en/expert-voices/banking-entrepreneurialism-next-generation.html

[11] ibid

[12] ibid