The (Inevitable) Regenerative Economy
Whether we plan for it or not, our global economy is on the precipice of a tectonic shift, driven by an unavoidable need to revalue the world’s rapidly diminishing natural resources. The stark reality that we consume nearly 2X what the Earth can reproduce, will soon force us into a new regenerative economic model, whereby environmental replacement costs (externalities) will have to be embedded into the price of everything we consume. That transformation will completely reshape every sector of our society and economy.
“A growing, more affluent population competing for ever scarcer resources could render the world unrecognizable by 2050”
– UN panel on population
Natural Capital is a rapidly diminishing, largely non-renewable resource, which intrinsically limits the supply. The current market however is grossly undervalued due to illiquidity, indivisibility, lack of transparency, monopolization and high-friction that translates into high transactional costs and long transaction times.
Companies and Fund Managers are urgently seeking hedge solutions to mitigate the risk of stranded assets or climate risk embedded within their portfolios. Environmental Mitigation Credits from Land Banks like the Rimba Raya Biodiversity Reserve can effectively mitigate those risks but are simply not sophisticated enough to satisfy their accounting & compliance needs.
The Biggest Risk to Investors In Oil Companies
“The biggest risk [to investors in oil companies] isn’t a spill or a blowout or a storm. Rather, it is stranded assets in a carbon-entangled world. If policy makers cap carbon emissions, the risk of ‘unburnable assets’ could have a significant impact on the valuation of some companies.”
– Secretary General of the Organization for Economic Cooperation and Development (OECD)
Government’s response to the impending threat of Climate Change was the UN brokered Kyoto Treaty. In 2005, the UN tried to address just one externality associated with our subsidized extractive economic model – Climate Change. Arguably, the effort has delivered underwhelming results. Under the treaty China and India were given a free pass on emissions and so the US refused to sign, and Global Warming ended up being just another partisan issue about which politicians and corporations debated and even denied the science.
Private Sector Response
The private sector’s response to Climate Change was quite different by contrast. This response has been led, not by enlightened CEOs or Brand Managers, but by Investment Fund Risk Managers. Long before it became vogue on college campuses to protest their endowment funds to divest from fossil fuel stocks, Risk Managers, particularly in the Pension Fund industry, were widely circulating a whitepaper that discussed the issue of “stranded-assets”.
To appease institutional investors worried about climate change exposure and the stigmatization of the environmental degradation associated with their products, companies have coined a magical new term: “Sustainable Supply-Chains”.
Sustainable Supply Chains
The only way to achieve truly “sustainable supply chains” is to embed environmental replacement costs in the price of the products we consume by adding “Environmental Mitigation Credits” as a Cost of Goods.
To give birth to a totally new global economic paradigm – they will need a powerful new tool, a profoundly disruptive new technology that can transcend political and corporate lethargy. We believe the tool that that can facilitate this new economic paradigm is blockchain technology, particularly in the form of Smart Contracts.
The disruptive tool we need to usher in a new sustainable economic paradigm. Ethereum based Smart Contracts are just beginning to be used in commodity settlements for oil & gas and agricultural commodities. The implications of this are potentially enormous. It means that blockchain can act as an emulsifying agent – blending digitized commodity settlements with digitized environmental mitigation credits (TGRs) into a compound asset class that we are branding as an “EcoSmart-Commodity™”.
As we see it, EcoSmart-Commodities™ are the only viable mechanism for achieving truly sustainable supply-chains with 3rd party certification, and it can facilitate this instantaneously at a fraction of the cost of current supply-chain certifications.