• Guntash Mangat

Tokenising natural assets to combat climate change

Scientists and engineers are developing various technologies to overcome the challenges of climate change. For example the renewable energy industry has grown significantly in recent years, but it’s proving difficult to achieve scalability and affordability. In addition, the lack of time needed to properly develop and test man-made solutions to climate change poses a threat to the environment as we are unaware of the potential long term consequences of our endeavours. However, the urgency of global warming demands that we take coordinated action immediately, otherwise we face grave prospects in the future. Perhaps we should look towards nature’s solutions to climate change which have evolved over millions of years to perfect the very processes that we are trying to invent. The assets of nature are often overlooked but if we use them to their potential, they offer us a sustainable way forward.

To take a specific example, we can consider the case of the whale. The role of whales in carbon capture and carbon sequestration is hugely significant - the amount of carbon dioxide that a single whale removes from the atmosphere is equivalent to that of thousands of trees. This is further multiplied by the contribution of whales to diversity in their ecosystem which leads to additional important avenues for carbon capture. For the most part, this knowledge has been restricted to the realm of marine biologists who are aware of the whale’s remarkable environmental benefits. For other actors in economic systems, e.g. policy makers, only the costs of whale conservation have been understood. This is because these costs have been in monetary terms whereas the benefits are explained in scientific terms which are more difficult to understand and take into consideration in financial calculations.

To help solve this issue, Ralph Chami decided to calculate the monetary value of the whale’s services with regards to carbon capture and carbon sequestration. He found that this value far exceeded the costs associated with conservation. The whale was treated as a financial asset providing value in 3 specific markets - carbon, tourism and fishing. It was concluded that the average discounted present value of a single whale is $2 million. This is only a minimum value because climate change is occurring rapidly so the price of carbon is likely going to sky rocket. In addition, the $2 million value doesn’t include the benefits of the whale in biodiversity or other areas where monetisation is not possible. This valuation of the living whale is a crucial turning point for both the well being of whales as well as the protection of the environment. In the past, we based this calculation solely on the price of a dead whale e.g. for its meat. It’s time to realise that the whale is a lot more valuable to us alive. As a nature based solution to climate change, it uses its own efficient technology to protect the planet.

Since we have now identified this important asset, we need to create a market around it to ensure that it’s providing the most value possible. This isn’t in an extractive sense, but in a regenerative, sustainable way that is able to benefit all stakeholders. To create this market, first we need to endow the asset with legal rights and protections. Whale valuation needs to be integrated into legal framework with penalties in place if an individual diminishes this value, e.g. by killing a whale or harming whale populations. Penalties should be based on credible calculations, such as the $2 million value of whale services calculated by Chami. The private sector could enter the market by providing insurance to fisherman who face the risk of harming whales. Jobs are created to monitor and enforce government regulation. Many third world countries that we currently regard as ‘poor’ have an abundance of natural assets. Therefore the creation of these markets would benefit these countries the most by establishing an incentive system that promotes conservation as opposed to poaching and other illegal activities that harm the environment.

Blockchain is a distributed ledger technology that could assist the creation of these marketplaces and thus support this circular economy approach. Blockchain obviates the need for trust in this market by allowing trusted and untrusted actors to coordinate their actions in a manner that fulfils both their self interest and the common good. This is important as natural assets in developing countries lack strong institutional foundations to rely upon for their legal rights. In addition, by bringing together different technologies, using the blockchain framework, we could create devices that track the whale and attach carbon credits to them. Then, we can tokenise these carbon credits which would allow impact investors to fund whale conservation. Furthermore, we can match these tokenised assets to firms who need to meet certain carbon neutrality goals. In this way, corporations are essentially paying for the services rendered by living assets, such as those provided by the whale.

The integration of natural assets into the financial system has benefits for us all. Governments benefit as they can capture the value of this asset and use it to increase spending in other areas e.g. healthcare and education. The local community benefits as greater employment opportunities are available. The natural assets themselves benefit as funds are being invested to ensure their conservation. There are also incentives in place such that the preservation of their species is more valuable than poaching. Lastly, investors benefit as this is a convenient way to reduce their carbon footprint and even earn a financial return as regenerative practices are implemented and the value of natural assets grow. Although the invention of new technologies is crucial for human advancement, it’s a good idea to also incorporate nature based solutions to secure a sustainable future.



© 2020 King's Impact Investing Society

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