United States: Natural asset companies: a nature-based solution to unlock the value of natural resources
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A new category of listed securities aims to finance the pursuit of sustainable development
In September 2021, the New York Stock Exchange (NYSE) and Intrinsic Exchange Group (IEG) jointly announced the development of Natural Asset Companies (NACs), a new class of exchange-traded securities that own rights and manage productivity. and ecological benefits. natural assets such as forests, marine areas and agricultural land.
NACs will attempt to place a value on the services – such as carbon retention, freshwater production, pest control, groundwater storage and erosion prevention – inherently provided by natural resources. To take into account the ecological value of NACs, IEG has developed an accounting methodology that will complement GAAP financial statements. NYSE plans to file listing standards and accounting information for NACs with the United States Securities and Exchange Commission (SEC) in the fourth quarter of 2021, paving the way for vehicle availability, if approved. by the SEC, starting next year.
The proceeds of an initial public offering (IPO) of the NAC will be used to manage the specific natural asset and possibly acquire additional natural assets or return value to the owners. Sovereign sponsors of NAC could choose to use surplus proceeds (beyond those required for natural asset management) to fund other sustainable development projects.
Although NACs are still a nascent asset class, IEG has already announced that it is working alongside the investment and expertise of the Inter-American Development Bank (IDB) in cooperation with the government of Costa Rica on potential NACs. Although NACs are not limited to government-owned natural resources, this new nature-based solution provides another tool for governments to work with the private sector to promote sustainability, while providing financial returns.
The announcement of the NAC and the involvement of the IDB in this effort are just the latest examples of development finance institutions partnering with the private sector, nonprofits and sovereigns on sustainable development and finance. climate.
For example, ahead of the 2021 United Nations Climate Change Conference (COP26), the IDB released a new study on 156 nature-based solutions projects in Latin America and the Caribbean (LAC). These projects cover a range of activities: securing water supplies and increasing water quality, restoring forests and marine environments, and encouraging sustainable agriculture. The report shows that many of these projects have relied on grants and that more work needs to be done to encourage blended finance solutions and leverage private sector funding. The IDB is partnering with the Green Climate Fund on a number of innovative deals across the LAC region, ranging from forest restoration to climate smart agriculture and sustainable energy.
Similarly, the United States’ International Development Finance Corporation (DFC) has entered into a Master Insurance Agreement with The Nature Conservancy (TNC) under which TNC will undertake up to 20 projects that will restructure sovereign debt and reorient a portion of loan payments to grant funding and capitalize an endowment fund for long-term funding of conservation activities. The objectives of these activities are to conserve and improve marine and coastal ecosystems, strengthen the governance and management of these ecosystems, and create resilient ecological and human communities. DFC and TNC currently have projects underway in Barbados and Saint Lucia.
According to experts, the financial resources necessary for the protection of natural ecosystems are facing a dramatic deficit. With the announcement of the NACs, the capital markets continue to react in original ways, creating financial mechanisms aimed at protecting, restoring and developing natural areas.
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