Earth Security Initiative: “Ecological Limits Create New Risks and Opportunities for Impact Investors”

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This article is cross-posted in NextBillion.

The Earth Security Initiative is bringing attention to the new investment agenda emerging around the notion of ecological limits. Among other things, argued its founder Alejandro Litovsky at SOCAP in Malmo last week, the limited quantity of resources like water and fertile land present a series of risks to investors, as well as opportunities for creating long-term value.

 

Changing Perspectives: Risk and Resilience

This initiative aims to focus financial markets and political leaders on ecological limits as an issue of economic risk and national security. Over the last year the Earth Security Initiative has launched high-profile agendas on resources like the the Amazon (Amazonia: The Focus on Risk) and fisheries (Fisheries: A Security System) which show why investors and policy makers must factor the risks of losing the resilience of these ecosystems. At the same time, the Earth Security Initiative calls upon investors and businesses to allocate capital in ways that build the resilience of natural capital and human security. The ESI founder argues that this includes looking at real estate investments, agriculture, energy and forests from entirely new perspectives.

The argument resonates strongly with the state of the world: the depletion of natural resources threatens social welfare, economic prosperity and political stability. One example is the exploitation of land commodities. Food commodity prices are steadily on the rise, much of the planet’s arable land is already being cultivated. Investors acquire large areas of fertile land to produce biofuels or food commodity crops. Where land governance is weak, such extractive agro-industries cause social tensions, as they endanger the food and water security of local people. The extraordinary amounts of water needed for irrigation of large-scale agriculture strains resources for local water consumption and the irrigation by small farmers. Further, the extensive soil exploitation decreases its reproduction capacity and leads to fertility losses.

The Earth Security Initiative is working on solutions that rely on information. It recently launched the Land Security Agenda, which focuses on the challenges of the ecological limits of the land and commodities investments agenda. The report argues that investors must consider ecological limits in their portfolio decisions.

 

Systemic Change through Collaboration

“A challenge with the impact investing sector right now” said Alejandro in the interview, “is that many impact investors are concerned with building their pipeline with small projects and there is a resulting lack of bigger visions, and more ambitious investment projects”. Realizing new larger scale opportunities will require a collaborative approach between investors, scientists, businesses and communities. By providing a new vision, a supporting network of entrepreneurs in this space, and a way to interpret information on ecological trends, the Earth Security Initiative is acting as a smart intermediary between investors and new investment projects, with the purpose of helping them think on larger scales, on larger capital deployment schemes and on larger geographies.

According to the ESI, more transparent information about the status of natural resources will raise the awareness and profile of ecological limits in different investment markets. It will increase the incentive for investors to consider the status of the ecological conditionalities in their portfolios, as well as helping entrepreneurs to develop a stronger business case to invest in ecological resilience.

Earth Security Initiative is a pioneer in changing market and governance incentives on an institutional and systemic level. Awareness about the ecological limits of our planet might shift decisions towards sustainable long-term investments and away from speculative short-term investments in natural assets. The success of this initiative will depend on how well the information and particular metric, provided by the Earth Security Initiative, will be applicable for investors, entrepreneurs and governments alike.

 

Getting the Signals Right

In a time of decreasing natural resources and increasing profit seeking, we need to get signals right so to get incentives right. Even more promising is the effort of the Earth Security Initiative that translates the signals of scarcity and limited carrying capacities of ecosystems into the metric of risk – making ecological limits operational in financial markets – and raising awareness of a third powerful narrative in a global political and economic sphere where money and power constitute the dominant narratives: the value of ecological systems.

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