Undeniably water, food and energy are vital resources that most
of us take for granted. Sadly this is not the case for all, roughly 800 million
people lack access to clean water (UN, 2012), around 900 million are undernourished (FAO, 2010) and 1.5 billion lack access to electricity
(IEA, 2010). Substantial progress has been made the last few decades but to
ensure water, food and energy security for every citizen we still have a
mountain to climb. Factor in an estimated population of 9 billion in 2050 coupled
with rising affluence and the challenge becomes even greater. The fact that
global water demand is set to rise by 30 %, energy by 40 % and food by 50 % in
2030 (UNESCO, 2010), while we simultaneously have to reduce the global footprint,
implies herculean efforts. Then, the behemoth – climate change, which increases
pressure on vital ecosystems and has the potential to adversely upend all scenarios
if we are unable to get it under control.
The Nexus
Water, energy
and food are fundamental to “get right” given their capacity for knock on
effects in other areas, for example Millennium Development Goals like poverty
eradication, improving health and ensuring environmental sustainability. They
are highly interdependent in relation to extraction, production, delivery and
consumption vis-à-vis resulting carbon emissions and implications for the wider
ecosystem. Hence, we must look at the entire planet
as a system and not risk damaging the whole by trying to address one specific
problem.
This very message is championed by the Water-Energy-Food Nexus, which
represents a more inclusive and integrated approach, not shying away from the
complexity and interconnectedness across the sectors. Investments in either
sector can’t be seen in insolation, for example innovative solutions in food
production must equally consider effects on water and energy demand and new
technologies enhancing water access have to account for the energy source. The
Nexus calls for breaking the “silo” perspective, allowing for more accurate
policy influence in connected areas such as climate change and biodiversity. Learn more about the Nexus on the Water, Energy and Food Security Nexus
Resources Platform.
Adopting a holistic business view opens up for collaborative efforts across sectors
including business, government and civil society, identifying synergies,
trade-offs and investment opportunities. Forward thinking multinationals are
taking this to heart. Using an integrated reporting framework to capture a more
all-inclusive view of their operations they are entering strategic alliances
and properly pricing externalities. Calculating the true cost of mining for
example would include effects on natural capital like damaged water streams,
degraded forests etc. It’s a safe bet that these intrepid companies will have a
significant edge compared to competitors mired in dated and incomplete
valuations methods and strategies.
Wanted: Investments
The scale of the needed investments are
staggering. The World Economic Forum’s Green Investment Report from 2013
estimates 5.7 trillion USD/year until 2020 for a green growth scenario in which
the temperature rise will be kept to 2 degrees (C°) by 2100. 2.2 trillion USD
out of the 5.7 trillion would be earmarked for the water, food and energy
sectors. Regardless of the exact figure it’s safe to say that success will
require nothing short of massive global cooperation for a sustained period of
time. A daunting task in today’s fragmented and tense negotiation climate. Interesting
to note is that scenarios for a 4-6 degree rise indicate drastically higher
costs according to a 2012 World Bank report. A 4-6 degree rise could also mean
that adaptation might be beyond reach, given the risk of crossing planetary boundaries.
i.e. critical climatic, geophysical, atmospheric and ecological processes.
Crossing certain thresholds and entering an unstable state could mean that the
Earth systems stop functioning in the manner in which human civilization have
come to expect. Among the 9 identified boundaries are freshwater use and land
use change. Learn more about the planetary boundaries concept from the Stockholm Resilience Centre.
To effectively combat climate change, protect natural capital and
create resilient ecosystems, using the Nexus approach, investments need to
happen now and not in a loosely defined future. One major reason for the slow
progress can be linked to the way we view and conduct investments.
The sustainable investment (green,
social, ethical, ESG) sector is a step in the right direction but it is still based on the old investment paradigm where focus is on minimizing
the negative rather than on maximizing the positive. More to the point,
sustainable investing, irrespective of using positive or negative screening methods,
still places financial returns over all else. We need to arrive at the insight
that protecting and improving natural capital is as important as a healthy
financial bottom line. In fact, financial returns will eventually decrease as natural
capital is destroyed and over exploited. At the same time we must be vigilant
to avoid the pendulum swinging too far, i.e. disregarding the importance of
financial capital and attractive returns. Economic growth fuels human
development and prosperity and is central to any green growth scenario ahead.
Impact Investing
Navigating the Nexus successfully for positive environmental
impact requires an investment perspective that embraces the same paradigm
shift, key aspects being:
Balanced – explicit intent to
boost natural and financial capital
as well as increasing social capital in the process (planet, profit and people)
Short & Long term - satisfy both current and future
generations through investments with different time horizons
Holistic – consider effects of
investment in interconnected sectors
Collaborative – push for strategic
alliances across stakeholders with shared value and broad positive societal
effects
Quantifiable – use verifiable
metrics to measure impact of investment in relation to stated goals along the
natural and social capital dimension
Answering
the call for this shift is
the Impact Investing scene, a growing phenomenon, both at the investor and
entrepreneur level. The Global Impact Investing Network (GIIN) defines the
concept accordingly:
“Impact investments are investments
made into companies, organizations, and funds with the intention to generate
measurable social and environmental impact alongside a financial return.”
GIIN values
the market at 9 billion USD in 2013 and Monitor Group estimates 500 billion USD
in assets within the decade. Not to be confused with venture philanthropy, impact
investors expect market rate returns and according to a 2013 study by GIIN 89 %
of investors say returns are as expected or exceeding initial estimates. A full
60 % of impacts investors see no need for a trade off between finance and
impact, designated as “yin yang” investors (JP Morgan, 2011). Read more about
the nascent sector on the GIIN.
As a burgeoning field impact Investing holds a lot of promise
but must ramp up fast in order to really live up to its name and create lasting
impact on a large scale. In addition to individual investments in small
startups it needs to target 100 million USD + investments involving
multinationals, governmental entities, civil society, academia and other
relevant stakeholders. The Water-Energy-Food Nexus represents the large scale, interconnected
undertakings necessary for Impact Investing to find its forte. The two concepts
could, if properly adopted, constitute a perfect match and help provide water,
energy and food security for every citizen in a way that keeps us safely within
planetary boundaries. The next ten years will reveal if this holds true.
CongressEA will do its part by dedicating itself fully to the
mission of catalyzing positive
environmental impact investments around the world. We hope you stay
tuned for upcoming posts that will further explore the complementing concepts
of the Water-Energy-Food Nexus and Impact Investing, applied in a real world context.
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