The financial markets are traditionally geared toward the bottom line though returns can be bolstered, and enterprise value compromised if the negative “externalities” such as environmental degradation are not monitored, managed for, and recognized on the financial statements to any major degree.
Thankfully, innovation and dynamic forward thinking about our natural resources ushered in a wave of activism within the asset manager community who continue to strive to incorporate ESG metrics into their financial vetting process. Environmental, Social and Governance factors are used to screen for companies that over time exhibit robust competitive risk adjusted returns taking these non-traditional factors into consideration.
Some firms truly stand out while others simply gloss true green analytics. My anticipation is that this movement will become more sophisticated and will include a “climate risk” factor for companies and the market given climate change’s systemic risk characteristics.
This may help as our environmental and natural asset needs increase, a common risk factor for the environment including carbon could help truly calibrate financial statement analysis.
Encouragingly, there continues to be a growth in innovative financial solutions such as green bonds that allow municipalities and companies to raise capital for specific green projects that can include clean transportation, innovative wastewater treatment and renewable energy.
There is also an organization named the Climate Bond Initiative that is a very informative portal of information to research these bonds as well as the standards that need to be met to be a certified green bond. Issuers range from the State of Massachusetts to Apple and even the Province of Ontario.
There is also innovation in our approach to financing our natural forested watershed assets in part by nonprofits such as Blue Forest who created the Forest Resiliency Bond. They seek to employ dynamic bond structures and stakeholder engagement to bolster resiliency against catastrophic wildfire.
This is all very encouraging though much more needs to be done at scale and we are working to develop and foster those initiatives for optimal health in the Lower Blue River Valley and beyond.