Measurement Army
Measurement Army
Natural Asset Companies (NACs): the next big grift?
“Land really is the best art.” – Andy Warhol
Modern economic systems generally do a suboptimal job of capturing the costs associated with environmental degradation. The proper accounting for such negative externalities has been debated for as long as organized societies have existed and attempts usually result in some form of government regulatory intervention. The patchwork, inconsistent nature of government action is the source of much frustration among capitalists and landowners alike, made all the more piquant as professional environmental organizations perfected the art of stunting economic development through legal means. Mix in regulatory capture, corruption, and the law of unintended consequences, and what often results is a toxic brew of outcomes that create more problems than they solve.
Consider the global obsession with controlling carbon emissions, a mission at the core of the environmental, social, and governance (ESG) religion of the day. Although carbon emissions are but a fraction of the broader environmental degradation challenge—and some would argue they cause no net damage at all—the world has nonetheless reoriented a powerful portion of its political and economic systems to address the issue. As we have noted previously, “[a] second-order effect of these tectonic shifts is the realization that you can’t regulate what you can’t measure, and the outlook for professional measurers has never been brighter.” An ever-growing parasitic load of carbon counters infects virtually every reasonably large company and government bureaucracy in the West yet delivers precious little value in return.
Recently, an inspired collaboration between environmentalists, well-heeled philanthropists, and investment bankers attempted to level-up the counting game by seeking to inject an entirely new class of corporate structure into the public markets. The scheme would have created natural asset companies (NACs), enterprises for which the primary purpose involves putting a market price on nature. We turn to The New York Times for an explanation of the concept:
“A landowner, whether a farmer or a government entity, works with investors to create a NAC that licenses the rights to the ecosystem services the land produces. If the company is listed on an exchange, the proceeds from the public offering of shares would provide the landowner with a revenue stream and pay for enhancing natural benefits, like havens for threatened species or a revitalized farming operation that heals the land rather than leaching it dry.
If all goes according to plan, investments in the company will appreciate as environmental quality improves or demand for natural assets increases, yielding a return years down the road — not unlike art, or gold or even cryptocurrency.”
Backers of NACs claim they “will create a virtuous cycle of investment in nature that will help finance sustainable development for communities, companies and countries” and “will enable investors to access nature’s store of wealth and transform our industrial economy into one that is more equitable.” Who doesn’t like virtuous cycles for nature? Who could complain about accessing nature’s store of wealth? What’s next, opposing puppies and babies?
Nonetheless, when backers worked with the New York Stock Exchange (NYSE) to petition the Securities and Exchange Commission (SEC) to adopt listing standards for NACs, a storm of controversy erupted, and the project’s sponsors beat a hasty retreat.
Just how would NACs work, why were they so aggressively opposed, and what might some unintended consequences be should the concept be resurrected? Let’s break out our rulers and do a little measuring ourselves.