The Environmental, Social, and Governance (ESG) movement is facing setbacks due to its diminishing popularity, poor investment fund performance, and pushback by Republican states. Desperate to keep ESG afloat, its proponents have devised a workaround through natural asset companies (NACs) to assign a value to nature and ecosystem services they produce.
The push for NACs is a joint venture between the New York Stock Exchange and Intrinsic Exchange Group (IEG) to list so-called “sustainable enterprises” under the auspices of fighting climate change and stopping biodiversity loss.
Importantly, the goal is to control how land and natural resources are managed, but not through the traditional regulatory or lawmaking processes. NACs attempt to control resources through the investment world.
On October 4th, the Securities and Exchange Commission (SEC) published a rule to authorize the listing of NACs as self-regulatory organizations on the NYSE. The agency rushed the rule and abruptly closed comments after 21 days on October 25th—a clear violation of the Administrative Procedure Act that requires, at minimum, a 30-day comment period minimum on proposed rulemaking. Recently, the agency admitted fault and extended the rule comment period until January 2nd, 2024.
The SEC lacks the authority to create these enterprises as they can’t oversee activities, including management and access, on private and public lands, respectively. Its mission is to protect investors and maintain efficient markets—not manage and conserve private or public lands.
If the rule is approved, the SEC is expected to enroll federal lands—including National Park, U.S. Forest Service (USFS), Bureau of Land Management (BLM), and U.S. Fish and Wildlife (USFWS) lands—that fall under IEG’s hybrid land use case. These so-called “conservation areas” would encompass millions of acres of land, including working or recreational lands, that would be off-limits to multiple uses and recreational activities. This is currently playing out in Montana and Wyoming.
In Montana, the Fish and Wildlife Service has proposed the “Missouri Headwaters Conservation Area” that would consist of 5.8 million acres—3.7 million is public while 2.05 million is private—without consulting the state of Montana. Attorney General Austin Knudsen argues this is in violation of the Federal Advisory Committee Act (FACA).
Due to backlash, the agency extended its comment period deadline. Their neighbor, Wyoming, is facing a similar battle with 3.6 million acres of hybrid lands falling under BLM’s proposed Rock Springs Resource Management Plan B. This version, favored by BLM and the Biden administration, would designate half of the area—1.8 million acres—as “areas of critical environmental concern” (ACES) that would forbid energy development and lease sales, recreation involving motorized vehicles, grazing, and, instead, establish more wilderness areas.
For these entities to achieve profitability, the SEC rule argues that NACs could “monetize ecosystem services that have markets” by selling carbon credits in order to “conduct sustainable revenue-generation operations.”
Carbon credits, along with offsetting, have come under scrutiny of late. South Pole, the world’s largest carbon offset firm, sold millions in worthless environmental credits for its Kariba project in Africa so corporations like Gucci and Nestle could declare their products and services are “carbon neutral.” Another recent investigation into carbon offsets found 94% of applied offset credits were “phantom credits” that did little to reduce carbon emissions.
The SEC rule, if enacted, would also pose a threat to both property rights and national security—in exchange for dubious environmental benefit. Natural asset companies, the rule asserts, would be granted permission to license land rights for minerals, water, or air to “sovereign nations or private landowners.”
Those “sovereign nations” could include adversaries like China, Russia, North Korea, or Iran. The Chinese Communist Party is increasingly purchasing U.S. farmland for intelligence-gathering purposes. The “private landowners” in question would likely be financial asset managers BlackRock or Nuveen Natural Capital—not the traditional family farm owners that might come to mind. Institutional investors, Nuveen argues, invest third-party capital to help “implement appropriate ESG policies and procedures that inform the land acquisition due diligence process and the ongoing management of the farmland.”
Like ESG investing, natural asset companies are another tool by preservationist environmentalists to virtue signal on environmental stewardship and distort market behaviors.
The government shouldn’t be assigning a value to nature nor transferring ownership and access away from individuals to financial asset managers and foreign nations seeking to potentially undermine us. People closest to the land treasure it and care for it best. This can’t be improved by sacrificing local control for manipulative regulations or inventive investing schemes.