When leading policymakers/think tanks in the West advocate de-growth as a viable way to combat environmental crises and climate change, African economies are caught between a rock and a hard place. Of course, that argument is very Western-centric, and perhaps a little arrogant, because it fails to recognize or center the daily realities of billions of people living in “emerging markets” and bearing the brunt of unsustainable practices.
Two things are frequently overlooked in discussions about investing in companies developing ESG solutions, particularly by activists advocating broad-sweeping and all-encompassing de-growth policies. Natural Capital is the first. The second question is how much technology can help save what it has played a significant role in destroying.
Here’s a one-question economics flash test for you. What are the production factors?
If you can remember what your boring high school economics teacher taught you after all these years, your list will most likely include all or some of these. Land, labor, capital, and entrepreneurship are all important factors to consider. Right?
The only problem is that the list is actually incomplete, highlighting a fundamental issue in basic economics and how the science of cost has evolved since Adam Smith wrote Wealth of Nations. What is missing is a fundamental cost component of any economic activity: nature.
Nature capital, according to the Nature Capital Finance Alliance, is “a way of thinking about nature as a stock that provides a flow of benefits to people and the economy.” It is made up of natural capital assets like water, forests, and clean air.” We unintentionally set ourselves up for a costly compounded interest over time by ignoring Nature’s costs of “doing business.” “When calculating corporate income and GDP, we generally assign a cost of zero to natural capital.” We may have difficulty determining the true social cost of natural capital, but it is most emphatically not zero!” says Shivaram Rajgopal, Kester and Brynes Professor of Business at Columbia University.
In reality, however, accounting for nature capital in ecosystem data such as GDP and so on will accomplish three things.
- Make us think responsibly.
- Increase the number of opportunities for better allocating other production factors.
- Prevent the use of euphemisms such as “water-neutral,” which essentially allow private and public agents to offset negative externalities in X location of impact in Z location while avoiding responsibility.
Saving itself: how responsive technology can help
The truth is that current technology is far from being the silver bullet that will automatically solve all environmental issues. It will never happen! Instead, we can use current (and even “outdated”) technology to support adaptive solutions to the most pressing climate challenges, while increasing investment and support in other future-forward technologies.
And it is our incredible ability to adapt and find powerful new ways to use both technology and natural capital to build prosperity that enables these two hopeful pillars of a pro-growth-pro-sustainability abundance thinking. Investors who truly understand this paradigm, as well as teams who take it into account when developing solutions, will be at the forefront of developing the powerful networks, ventures, and policies that Africa and the rest of the developing Global South most impacted by climate change require to survive, adapt, and thrive.
“In order to achieve social justice, emerging market countries must maintain economic growth.” Technology will advance to allow us to grow while using as little natural capital as possible. “There are numerous investment opportunities in such technologies, as well as in adapting to extreme weather events and to a world where we use natural capital more effectively,” Rajgopal contends. I concur. Sustainable design does not have to mean less for people who are already struggling. It may not imply the unbridled consumerism of the West, but it does not have to spell the end of economic growth. Green startups and climate-focused investors who are increasingly entering the ecosystem are the first and biggest bets that this is true.