As Petroleum Investment Lags, the Value of Nature Takes Center Stage

Despite the environmental toll of fossil fuel extraction, industry stakeholders are still trying to make the case that global economic security depends on ample supplies of petroleum, coal and natural gas. But their argument starts to crumble as more sustainable forms of energy emerge. Further, investor attention is turning toward the value of protecting natural ecosystems from the harmful impacts of human activity, as a means of fostering a secure and healthy environment for long-term economic growth.

The value of petroleum

Wind and solar power began to commercialize in force during the first decade of the 2000s, with support from the Barack Obama administration in the U.S. and other heads of state globally. Former ExxonMobil CEO Rex Tillerson and other fossil fuel stakeholders arrayed in opposition. Arguing these new resources were too expensive, they claimed that government policies friendly to renewable energy would prove harmful to local communities. 

Only fossil resources, Tillerson claimed in a 2013 shareholder meeting, could prevent “energy poverty" and help resolve global public health issues.

This appeal to economic equity and public health rang hollow back then. And the argument is further undermined by the falling cost of wind and solar.

Here in the U.S., policymakers and entrepreneurs are working to improve access to low-cost solar power among underserved households. Price parity enabled wind and solar to become the preferred pathway for new power generation capacity on the U.S. grid. New forms of energy storage also provide for increased resiliency and reliability.

That could explain why fossil fuel stakeholders have dropped the “energy poverty” argument in favor of a more broad-brush appeal to global energy security. 

The Organization of the Petroleum Exporting Countries (OPEC) provides one such example. On Monday, OPEC Secretary-General Haitham Al Ghais warned CNN reporter Becky Anderson that oil prices would surge to $100 per barrel unless investors stepped up their activity. 

Al Ghais said a total investment of at least $12 trillion would be needed between now and 2045 to prevent a spike in petroleum prices.
“By underinvesting, we are actually endangering energy security… Without this [investment], I think there are serious possibilities that prices, the volatility, will be increasing as demand grows,” he told CNN. “We have to make sure that the world has enough energy — stable, affordable, reliable, not intermittent sources of energy.”

Anderson elaborated further, reporting: “Al Ghais said population and economic growth meant there was ‘no way on earth’ that the world’s future energy requirements could be satisfied by renewables alone, or by relying on hydrogen as an energy source."

The value of nature

Among other issues, the energy security argument neglects to include at least one key factor. In addition to making up for an investment gap, petroleum stakeholders will need to maintain a workforce capable of putting those dollars into action. That prospect is rapidly dimming. A new generation of climate-aware workers are rising, and they are dismissing fossil energy careers in favor of work that tackles the climate change crisis head-on.

Consumers, clients and activist shareholders are also driving the investor exodus from fossil energy. Although ESG (environmental, social and governance) principles have come under sustained attack by fossil energy stakeholders and their allies in government, the ESG movement is still growing and evolving among companies and investors, in response to consumer preferences for environmental protection.

In the U.S., consumer surveys show strong support for companies that place a value on environmental stewardship. In contrast to OPEC’s focus on energy security, investors are increasingly focused on risks to other areas including food systems and property.

The nature accounting movement

That more expansive view of risk management is underscored by the new Nature Finance Focus report from the Pollination Group, a climate advisory and investment firm.

Pollination is part of a global movement to account for the value of nature, similar to the way in which many companies account for carbon. The nature accounting movement puts a value on resources that were previously regarded as infinitely abundant and free for the taking, including air, soil, rain and other water systems. All of these resources are now at grave risk.

Some familiar examples of nature investing include sustainable energy, agriculture, forestry and fisheries, along with recycling and other aspects of the circular economy.

The report is part of a string of moves to advance the valuation of nature — which looks to quantify the vast benefits ecosystems provide, from absorbing carbon out of the atmosphere to providing us with food and clean water. It comes shortly after the newly formed Taskforce on Nature-related Financial Disclosures issued its final recommendations for corporate risk reporting tied to nature. 

Released in September, the Nature Finance Focus report includes a survey of 557 institutional investors and asset managers from the U.S., U.K., France, Australia, Japan and Singapore.

The survey indicates that ESG principles have laid the groundwork for pivoting to a broader focus on natural systems — particularly in the U.S., where 87 percent of institutional investors are on track to increase their stake in natural assets and 71 percent of asset owners “consider nature a new emerging asset class.” Among all six regions, 69 percent of investment firms plan to increase their focus on the risks and opportunities tied to natural assets like soils and water.

Although the sample size is relatively small, the survey respondents represent an outsized influence on financial markets. Of the 557 respondents, 332 manage more than $100 billion in assets and 47 manage more than $500 billion, according to the Pollination Group. 
 
“Though risk perception, motivations for investment and expected returns differ across the globe, all regions share the view that nature–related investments can be recognized as a new asset class (75 percent), with larger investors much more likely to hold this view,” the report found.

Beyond ESG

Pollination Group recognizes that throwing money at investment opportunities is not a solution. Meeting the expectations of a climate-aware workforce is also a critical element. 

“It’s clear that investors across the globe are starting to recognize the potential this has for reducing risk, and the critical responsibility to protect our natural environment,” explains Martijn Wilder, Pollination co-founder and CEO. “But we need much more: a significant and sustained build in capability across capital markets, including skills and human capital, information infrastructure, and new models and norms.”

In addition to attracting climate-aware talent, companies that adopt nature-based principles may be able to raise the bar on climate action without becoming entangled in partisan political battles over ESG principles. 

In the U.S., the Joe Biden administration put forward additional support for a focus on the value of nature. In August, the Office of Management and Budget issued proposed guidelines requiring all federal agencies to account for ecosystem services in their cost-benefit analyses for new infrastructure projects. The U.S. Environmental Protection Agency describes ecosystem services as the “benefits that humans receive from nature" — which "underpin almost every aspect of human well-being, including our food and water, security, health, and economy."

This marks the first time the U.S. government has required an accounting of natural assets. In a White House statement describing the proposed guidelines on August 1, OMB emphasized the bottom-line benefits of nature valuation.

“The environment benefits our lives every day: Timber provides the structure of buildings that underlie our economy. Pollinators help grow our food. Healthy forests reduce wildfire risk and improve air quality. Wetlands help to manage flood risks and provide habitat for fish and wildlife that support an outdoor recreation economy,” the announcement reads. “When we account for our environment, we are able to harness opportunities to confront climate change, promote prosperous and resilient communities, and invest in strong infrastructure."

The EDF (Environmental Defense Fund) and 16 partner organizations voiced their support for the proposed guidelines on September 19. “Accounting for these benefits will help advance nature-based solutions that build climate and flood resilience, improve water quality and public health, and provide quality habitat for wildlife and outdoor recreation,” said Dr. Natalie Snider, associate vice president for EDF’s Climate Resilient Coasts and Watersheds program, in the statement.

To the extent that nature valuation emphasizes sustainable solutions and low-impact renewable energy resources over fossil fuel extraction, the core principles of the ESG movement are not just alive and well. They are also gathering force.

In the U.S. at least, whether or not that momentum continues after the 2024 election cycle is up to the voting public. 

Image credit: Jeffrey Workman/Unsplash