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A Planetisation of Finance: Valuing the Planet as a Going Concern

June 5, 2017 • EMERGING TRENDS, Capitalism in the 21st Century, Climate Change & Society

By Joss Tantram

Valuing the planet in economic terms runs the risk of financialising, commodifying and privatising nature. The task in front of us is not to tinker with the methods, but to reverse this concept, moving from the financialisation of the planet to the planetisation of finance.

“We have statesmen and politicians who profess to guide our destinies. Whither are they guiding our destinies?” – H.G Wells

 

Valuing Continuing Existence

In recent decades considerable effort has been invested into describing and identifying the planet’s natural environment in terms that can be appreciated and integrated into the language of economics and finance.

From the 1997 work of Robert Constanza et al1 onwards, the TEEB coalition2 and the Natural Capital Coalition,3 to the multi capitals approaches to accounting and reporting that are forming part of efforts by organisations such as the SASB4 (Sustainability Accounting Standards Board) and the IIRC5 (International Integrated Reporting Council). Each is seeking to quantify and therefore consider the value of natural systems and their outputs in comparable financial terms.

To move beyond a critical analysis of the pros and cons of such multi-capitals approaches it seems that there is a simpler pre-existing conceptual vehicle that could be adapted to provide a forward-looking perspective on the value of the planet and its assets (natural, human, built and otherwise).

This is the concept of the going concern, the accounting approach to assessing the value of an enterprise based upon its potential for continuing existence. It is at the heart of our thought experiment to explore an IPO for the Earth;6 a finalist in the ICAEW/ Accounting for Sustainability Finance for the Future Awards 2014.

 

Opportunity costs…and benefits

Approaches to the valuation of currently under-represented/under-priced sources of capital (those which are not pure financial capital) predominantly focus upon two value aspects, of capital stocks and capital flows.7 A simple metaphor for these two categories is that of a bank account – where the stock is the money in the account and the flow is the interest that is generated by the capital.

However, beyond this categorisation of stock and flow value there is perhaps a more significant area worthy of attention – to focus upon the going concern value that the existence of healthy stocks and flows gives rise to. This is not a value of the stock or flow itself – but is derived from the opportunities that become possible because of the existence of the stocks and flows.

When viewed through this lens, natural capital becomes most powerful not when it is used to give rise to an asset value (“what would we get if we sell it?”) calculation, but a going concern value “what does the asset’s continued existence and health allow us to do and how valuable is that?”.

A distinction between asset price and the value of the opportunities that arise from the asset is partially reflected in the concept of stocks and flows. However, a going concern value goes far beyond a flow valuation. An example of these category differences for a company like Google would be as follows:

• Asset value – the market capitalisation of the company – what it would fetch if it were sold.

• Asset flow value – the yearly revenue of the company.

• Going concern value – in addition to the categories above, the value of all the things that exist because Google provides and facilitates fertile ground for a huge range of activity.

 

 
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