Sound economics, naturally.
by Assaad W. Razzouk
The economic performance of nations and of corporations is judged by imperfect markets without any regard to their usage of our collective natural capital. As a result, some “profitable” companies and “growing” economies may in fact be monsters greedily ignoring the needs of future generations, instead of the success stories they are commonly thought to be.
It doesn’t have to be this way.
Every day, we aim to show that responsible businesses can in fact operate profitably when they correctly price natural capital into their activities and contribute to safeguarding the interests of future generations.
In the Philippines for example, most coconut growers place little value on their coco-husks and leave them behind as waste. We pay growers a fair price for these husks (boosting income and employment in poor communities), then use them to produce coco-peat and fibre – sustainable products that displace harmful alternatives like natural peat, which emit large quantities of greenhouse gases (GHGs). We (and local communities) are making money from a starting point of zero. At the same time, we are removing waste which may generate more GHGs; and in this particular case could also harbour pests, become a fire risk and take up valuable growing space.
Our work in Indonesia follows a similar model of reducing GHGs while generating clean energy and helping operators work more efficiently. Here, we work with a manufacturer of food and medicinal grade ethanol extracted from locally grown cassava. The ethanol manufacturing process produces waste water that traditionally has been allowed to decompose in open lagoons and local water courses, resulting in substantial releases of GHGs and other pollutants (in reality at little or no cost to the polluter). Using anaerobic digestion technology to create a controlled version of the natural organic waste breakdown process, we installed a wastewater treatment plant that captures and exploits the methane that was otherwise a wasted energy resource (and a potent GHG). The biogas collected from the digester is cleaned and compressed and supplied to meet the energy needs of the plant’s manufacturing process, thus providing the plant with reliable and clean energy and displacing the fossil fuel-based energy it has had to buy in the past.
Correctly pricing natural capital should make more money, not less.
It is not the growth potential of India, China, Thailand, Indonesia, or the Philippines that is driving our investment there. In fact, because natural capital is being rapidly depleted in these countries, and because no viable price mechanism exists to force businesses to protect this natural capital by pricing clean air, clean water or biodiversity, we worry: Water scarcity, health problems, populations, and energy demand will all increase while land, water and clean air supplies will not. It may well be that “growth” these countries have gone through turns out to have been a bygone period of relative prosperity, “phantom growth” where past generations ignored the needs of future ones for natural capital, aided and abetted by the markets and politicians.
Our concern that these nations’ rapid expansions are cases of “phantom growth” has led us to seek defensive investment sectors. Our projects are designed to realize returns regardless of these countries’ underlying flaws. But should we be proved right that we are in the midst of an unsustainable plunder of the planet, these initiatives should thrive through their focus on clean energy, sustainable commodities and water and air credits; the utilization of waste; and the proper pricing of natural resources.
A good example of this approach is our work in India on bagasse co-generation. This refers to the combustion of sugar mills’ sugarcane residue, a process which reduces GHG emissions while creating clean energy and steam; outputs for which the mill can claim renewable energy certificates under India’s new initiative to promote clean energy.
We focussed on the sugar sector because India is likely perennially short of fossil fuel-based energy and its demand for sugar is unlikely to abate, especially with a rising population. Furthermore, the sugar cane industry is spread out across several states with different weather patterns. Finally, sugar cane is more defensive than many other crops in the case of floods and other extreme weather events (compare sugar canes with banana trees for example).
Our investments typically enable the sugar mill to significantly expand its power generation capacity from its captive bagasse, thus allowing it to generate power throughout the year and to sell its excess power (which in most cases means most of its power) to third parties. Through more efficient operations the plant creates additional jobs and contributes to the mill’s financial security, on which around 100,000 people or more may depend.
Pricing natural capital correctly is profitable, results in more sustainable businesses and communities and stops us robbing future generations.
This article first appeared on naturalcapitalforum.com, the official website for the World Forum on Natural Capital – Edinburgh 2013. Assaad will be a guest on the panel session titled ‘How has the financial sector responded to the challenge since Rio+20?’ on Day 1 (Thursday 21 November).
