Business Is Facing Up to the Risks of Destroying the Natural World
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Business Is Facing Up to the Risks of Destroying the Natural World

Companies from around the globe have volunteered to report their impact on nature

By JOSHUA KIRBY
Tue, Jan 23, 2024 9:15amGrey Clock 3 min

Hundreds of businesses have volunteered to measure and report their impact on the natural world, as they recognise the growing risks to their own operations from environmental degradation, including a denuded Amazon rainforest and dying coral reefs.

While many businesses are struggling to meet coming requirements to report their climate impact, more than 300 banks and companies are pledging to go much further. Early movers from across sectors and countries have promised to regularly publish nature-impact information as set out by the Taskforce on Nature-Related Financial Disclosures, or TNFD, a United Nations-backed initiative.

The first adopters represent $4 trillion in market capitalisation and around $14 trillion in assets under management. They include seven of the world’s 29 globally systemic banks, Japanese investor SoftBank, Norway’s sovereign-wealth fund, Gucci parent Kering, miner Anglo American and pharmaceutical majors GSK, AstraZeneca and Novo Nordisk.

Take-up by sector leaders should encourage peers to accelerate their efforts, said Tony Goldner, executive director of the TNFD. The framework is aligned to the Kunming-Montreal Global Biodiversity Framework agreed to in 2022 by nearly 200 countries. It recommends disclosures in governance, strategy, risk and impact management, as well as sector-specific metrics and targets for reducing impact.

Biodiversity impact is both a new type of risk and a new opportunity, said Valentin Alfaya, sustainability director at Spanish-listed infrastructure group Ferrovial, one of the first movers. “As a consequence of the implementation of the TNFD and our own natural capital assessment program, sometimes investments are going to be left aside,” Alfaya said.

“When you are interacting with those protected areas that are very relevant in terms of ecological value…it’s really risky for the company, not just in terms of reputation but also in terms of operations and even finance,” he said.

Using the framework will guide investment and help integrate nature into financial decision making, said Marisa Drew, chief sustainability officer at lender Standard Chartered. The move is a “significant opportunity for us to facilitate financial flows toward nature-positive outcomes,” Drew said.

Gauging impact is central to business decisions and managing risk, said Jennifer Motles, chief sustainability officer at tobacco giant Philip Morris International. “The TNFD recommendations and guidance will support us as we continue to focus on nature-related dependencies, impacts, risks, and opportunities,” Motles said.

The ramp-up in disclosure comes amid heightened awareness of the threat posed to the world by such natural degradation. The top four medium-term risks are all environmental, according to the World Economic Forum’s global risk report published earlier this month. They include extreme weather events, critical changes to the Earth’s systems, a collapse of the ecosystem and natural-resource shortages. “The collective ability to adapt to these impacts may be overwhelmed,” the report warns.

The World Bank estimates that the global economy could lose $2.7 trillion by 2030—which would mean a 10% drop, on average, in the economic output produced across all nations—if certain at-risk ecosystems collapse, such as fisheries or pollination by bees.

Adoption of the TNFD is “a clear signal that investors, lenders, insurers and companies are recognising that their business models and portfolios are highly dependent on both nature and climate,” the taskforce’s co-chair, David Craig, said. Natural risk should be treated both as a strategic risk and an investment opportunity, Craig said.

But reporting the damage done to the natural world isn’t the same as stopping it, said John Tobin-de la Puente, a professor of corporate sustainability at Cornell University. Disclosure is less about encouraging companies to change than it is about giving investors clear information on risk, he said.

Unlike carbon emissions, which can be assessed in terms of metric tons, there isn’t consensus on how to gauge environmental impact—whether, for example, in terms of protected species, general biodiversity, or a bundle of measures, said Tobin, a tropical ecologist and corporate lawyer by training. Some efforts have been made to create units of ecosystem impact, but for now, no universal metric exists, he said.

Alternatives to current business models will also need to be created, just as renewable energy has been developed to replace fossil fuels, Tobin said. “Will we get there at some point soon, before it’s too late for the biosphere?” he asked. “That question is still open.”



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Is the Stock Market Near Its Top?

Don’t let the hum of the bull tune out signs warning that a bear may be lurking.

By ANDY KESSLER
Mon, Jul 15, 2024 3 min

The third season of the terrific show “The Bear” blends family dysfunction with the ups and downs of high-end restaurants. With markets chasing new highs—get out those Dow 40000 hats—this column is about a different kind of dysfunctional beast. Is the market bear dead, or is it about to sneak up on us?

A U.S. equity strategist told me the story of a Japanese portfolio manager who sat in his office in July 1987 asking for stock ideas. The strategist’s model was based on a proprietary survey of investor sentiment, though it never really worked. Nonetheless, he read off a list of dozens of stocks. The portfolio manager then asked if he would kindly put in an order for 20,000 shares of each. The Dow Jones Industrial Average peaked at 2722 in late August and crashed 22.6% on Oct. 19.

A friend was a portfolio manager of a massive growth-stock fund in 1999. He told me he bought shares of Yahoo, Cisco, F5 Networks, Infosys and others every day because money flowed into his fund every day. The tech-heavy Nasdaq index peaked on March 10, 2000. As money began to flow out, he had to sell every day. By year’s end, Nasdaq had fallen by more than half.

I met Cathie Wood as she was filing papers for her “disruptive innovation” funds—to “change the way the world works.” Her ARK Innovation exchange-traded fund, ARKK, launched in October 2014 and charges 0.75% management fees. In 2020 it was up 153% as stimulus money flew in, driving more buying. ARKK peaked in February 2021 with $28 billion in assets. Since then, its net asset value is down 70%, even amid a roaring bull market, especially in tech. Morningstar recently calculated that Ms. Wood’s Ark Invest funds have destroyed more than $14 billion in wealth. One of my favorite Wall Street sayings is, “Don’t mistake a bull market for brains.”

In almost every bull run, stock momentum lures in investors at the worst moment, I call them momos, ensuring they get burned when the buying stops. Since 2009, excepting a few brief sell-offs, cash has been trash. That made some sense during the era of zero interest rates. But now with higher inflation and short rates above 5%? Confusing. Maybe investors are already anticipating another Donald Trump antiregulation pro-growth presidency, forgetting that he is married to a growth-killing pro-tariff agenda. Is the bear dead, or does it have a long fuse?

Predicting stock markets is a fool’s errand. My Series 7 test for General Securities Representative Qualification lapsed long ago, so you won’t get investment advice from me. But there are warning signs.

Have we run out of buyers? Sometimes there are triggers that scare them away: oil shocks, viruses, bank failures. But sometimes they simply collapse from exhaustion. More than 40% of households reportedly own stocks—a higher percentage than in 2000. It was 20% in 2010. Some market indicators also point to asset managers being fully invested. Who’s left to buy?

Market breadth is concerning. The 1973 market peak was driven by stretched valuations of the Nifty Fifty, which included IBM , Coca-Cola and GE but also Polaroid and Xerox . Fifty? Now it’s the Magnificent Seven: Alphabet , Amazon , Apple , Meta , Microsoft , Nvidia and Tesla . Seven? Artificial-intelligence hype, way ahead of even the rosiest of realities, drove Nvidia to make up almost a third of the S&P 500’s first half gains. Another quarter came from Amazon, Meta, Microsoft and Eli Lilly . Maybe fat bulls need Mounjaro.

Stock values feel divorced from reality. The so-called Warren Buffett indicator—the ratio between total stock-market value and gross domestic product—was 138% in March 2000. It’s now 196%. Certainly not a buy signal. And Bitcoin, my go-to bubblicious bat signal, is down about 20% since March. A dead canary?

“Don’t worry, be happy,” the bulls sing. Inflation is slain, and the Fed will cut rates. But investors won’t like the reason for those cuts. We’re already seeing earnings disasters—Nike, Walgreens , Lululemon , Delta and Wells Fargo . If the economy slows, earnings glitches and stock implosions become contagious. Plus, banks’ exposure to commercial real estate is scary, with buildings being dumped at huge haircuts almost weekly. This is now infecting rental buildings, and there are signs of a private housing glut. Inventory in Denver is up nearly 37%. Sure, markets climb a “wall of worry,” and bull markets tend to last longer than people expect, but sometimes the nightmares are real. Recessions are like honey to bears.

Even writing about the bear is bullish. Bull runs end when everyone is a believer. Still, another favorite saying of mine is, “No one’s ever lost money taking a profit.” Someday, cash will be king again. I prefer to buy stocks when everyone hates them.

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