The Future of Sustainable Investing

Written by Carly Kramer

Through Stern’s social impact core, we are taught to question the purpose of modern businesses. We are no longer simply encouraged to consider a company’s bottom line, but also to think about a company’s impact on the environment, local communities, employees, and all other stakeholders. Although some people might view sustainability as nothing more than a buzzword, developments in the financial services industry suggest that an emphasis on impact is the future of the industry

In September of this year, the New York Stock Exchange (NYSE) developed a new asset class in partnership with the Intrinsic Exchange Group. Called Natural Asset Companies, or NACs, this new class of ESG assets will assign value to natural and ecological resources. Essentially, a company, individual, or government could list a rainforest, for example, as a NAC. Much like a typical asset, a NAC will be traded once it is listed on the New York Stock Exchange. But instead of using the money raised to fund an expansion or merger, the money raised will fund the protection of the natural resource. So, if the NAC was created to protect a rainforest, any money raised would be used for the conservation of that forest. NACs represent a shift away from the traditional view of ecological resources. Instead of seeing the value of a rainforest in terms of the timber its trees can yield, of land in terms of how many crops it can produce, now the rainforest will be valued as a whole rather than the sum of its parts. This class of assets is the first of its kind, paving the way for more sustainably focused forms of investment to be created in the future. 

Not only will these assets be measured according to Generally Accepted Accounting Principles (GAAP), but also according to new metrics for environmental impact. Meant to quantify the value of these resources, the new metrics were developed in collaboration with former Financial Accounting Standards Board (FASB) Chairman Robert Herz and several accounting firms. The goal of these new metrics is to help investors understand the value of a wetland, or a forest. Before this method was developed, investors could intrinsically understand that protecting a rainforest is important. But it would have been very difficult for an investor to measure the value that a rainforest creates for local communities and for the environment.

During the fourth quarter of this year, the NYSE plans to file the accounting standards and the ecological metrics with the Securities and Exchange Commission. As early as the first quarter of next year, the first public and private sector NACs are expected to be listed. According to a Fortune article on the topic, Costa Rica, a country which is a leader in global sustainability efforts, has shown interest in creating a NAC. The country’s Minister of Environment and Energy Andrea Meza Murillo even said in a Fortune article, “This will deepen the economic analysis of giving nature its economic value, as well as to continue mobilizing financial flows to conservation.” In addition to Costa Rica’s government, a Bloomberg article reported that a number of multinational companies are also interested in creating NACs. 

NACs are just one example of how the financial services industry is changing, creating space for more nontraditional, impact-focused assets. Thus it is important to bear in mind that this theme of sustainability will continue to be relevant as we move from our academic lives into our professional lives.