Costing the Earth - can we put a price on our planet?

September 2019

Scorching summer temperatures, record breaking fires in the Amazon and hurricane Dorian on the doorstep of America. James Thurkettle, Corporate Finance Executive looks deeper into the state of our planet and asks what can be done financially to help combat climate change.
 
2019 has seen a record number of fires raging throughout Brazil and the Amazon rainforest, with more than 80,000 fires recorded so far this year and who knows how many more that haven’t been recorded. This represents an 80 percent increase in the number of fires recorded in the same time period in 2018.
 
Who would want to destroy such a beautiful and natural forest? Many of the local farmers clear and burn large areas of forest in order to make the land suitable for agricultural use, which is one of the largest industries in Brazil. Agricultural land now makes up approximately 31 percent of Brazil and is used to grow mainly sugarcane, coffee, soybeans and corn.
 
The Amazon rainforest, often referred to as “the lungs of the planet”, is crucial to the sustainability of the planet and our ability to combat climate change. It is thought that this part of the world is responsible for producing up to 20 percent of the oxygen in our atmosphere. With hard hitting figures like that it is easy to see why destroying the rainforest is such a big deal for humanity.
 
Combating the destruction of the rainforest is a large and complex issue. During last week’s G7 meeting, it was announced  that the G7 would offer $22m to the Brazilian government to aid the fight to stop deforestation and in turn help fight climate change, something that has been the priority in their previous G7 meetings. Unfortunately, the $22m aid offer was rejected by Brazilian president Jair Bolsonaro, who in a thinly veiled dig at the world’s economic leaders suggested that “maybe these resources are more relevant to reforesting Europe”.
 
A further $5m has been pledged by actor Leonardo DiCaprio, however, given Brazil’s reluctance to accept aid, it isn’t clear whether this offer will be accepted and indeed if it will ever make it to helping the rainforest.
 
With foreign aid being refused and worsening climate conditions, perhaps it is worth asking whether we should be placing a “cost to the earth” price on the natural resources that we take, use or destroy? ‘An invoice from mother nature’ as some might call it. If a standardised price was placed on natural resources such as trees and minerals, would we find alternatives and slow effects of climate change?
 
It is likely that an initiative like this would make people think twice about using certain resources, but it is also just as likely to increase prices for consumers for finished goods, essentially passing this extra cost onto the end consumer and thus not creating any substantial deterrent for the individuals and corporations responsible for the resource extraction in the first place. The idea is that the money raised by this “natural resource tariff” could be used to replant forests or fund research into alternative fuels.
 
All of this of course depends on answering the question of how you would value an intangible asset such as the planet’s natural resources? As financial professionals we draw on a wealth of knowledge and experience when carrying out a valuation project, but even we do not have the experience or expertise needed to value the planet! We can however give professional and independent advice if and when a business owner needs to have their firm valued, and have many years’ experience in providing financial guidance to businesses of every shape and size, and at every stage of their business journey.
 
When it comes to the planet, possible measures could include carbon footprint costs, replacement costs or even price matching to eco-friendly alternatives in order to make them more competitive.  Which of these valuation methods, if any, will prevail will only be evident in the future.
 
No one knows the exact extent and timescale of climate change, or what the consequences of ignoring it might be in the future, but with increasing natural disasters, rising temperatures and melting icecaps can we really afford to keep ignoring it? How bad does the situation have to get before the issue is properly addressed?
 
Combating climate change will be no small feat, requiring input from politicians, scientists and other professionals (including accountants) from around the world. What price would you pay for the planet’s sustainability and natural beauty?
 
Contact Us
If you are considering buying a business, selling a business or negotiating terms contact James Thurkettle or one of the Corporate Finance team for more information by calling 0330 058 6559
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