The Financial Sector: An Unlikely Ally for Conservation

A recent study published in Nature traced commodity production induced species loss back to over-consumption in major economies such as the US, EU, China and Japan. A similar exercise could be carried out for the threat to species resulting from mineral and fossil fuel extraction. In both these cases, the main enablers of consumption are giant multi-national corporations and their extensive supply chains. Aided by globalization, big corporations have been ratcheting up consumer demand for imported commodities (soy, corn, beef, palm oil, timber) by creating mass markets for products which had no markets or only niche/local markets before globalization.

Global hotspots of species threat linked to consumption in the United States.

Global hotspots of species threat linked to consumption in the United States Source

I recently had the privilege to attend a lecture by Prof. Gordon Clark, Director of the Smith School of Enterprise and the Environment at the University of Oxford during a training programme on ‘Enterprise and the Environment‘. The insightful talk helped me put into perspective my notions about consumer capitalism and the role of MNCs. Until then, I had believed in the convenient binary – big corporations are always bad for the environment and the key to sustainability is small-scale decentralized local production. Upon listening to Prof. Clark, I realized that this may not always be the case.

Big food/big oil/big coal is undoubtedly putting unsustainable levels of pressure on our limited resources. Mass production of commodities through monocultures and large-scale extractive industries have enormous carbon, water and biodiversity footprints. While it is true that the problem lies with multi-national corporations and the infinitely elastic demands they keep stretching, it is also true that they are the only ones commanding enough cash flows to transition to more sustainable practices and exert enough pressure on their local suppliers to follow suit. Smaller local businesses may not have the financial wherewithal to renew their capital stock and make the switch to more sustainable technology/practices.

Smaller businesses in the unorganized sector are often hidden from the public eye and it is difficult for non-government actors like the civil society and the consumers to make them accountable for their environmental performance. On the contrary, big corporations have more sensitive brand images and reputations, which makes them more accountable to their customers and civil society through their shareholders. This is aided by the fact that corporations have steered away from the classic ‘profit motive’ to a ‘shareholder value’ objective. In major public corporations, the top 20 owners own just 30% of the total shares, at the most. The rest are owned by retail and institutional investors. Herein lies the power of the financial sector. It would be fallacious to think that big corporations are entirely invulnerable. Financial investors wield enough power to bring the mightiest of them to their knees for their environmental transgressions. Erring companies (e.g. BP, Volkswagen, Vedanta) have faced eroding share prices, investor pullout and even bankruptcy (e.g. Peabody Energy).

Financial investors do not have an intrinsic interest in corporations. If corporations continue to regard the environment merely as a risk, failing to realize its intrinsic value and integrate it into core decision-making, then investors will readily take their money elsewhere. They are already redirecting their investments from fossil fuels to renewables. 2016 marked the first year in history when green energy surpassed fossil fuels in total electricity generation capacity of the world, as per the IEA. New corporations that build natural capital rather than eat into it are set to attract more investment in the future (e.g. natural infrastructure and conservation finance). Conservation projects (e.g. sustainable forestry/agriculture/fisheries, landscape restoration, mitigation banking, watershed protection etc.) are set to attract $200 – 400 billion in private capital investment over the next four years, according to a recent Credit Suisse report.

Thus, whether they like it or not, conservation organizations have found an unlikely ally in the financial sector and they will do well to harness its power.