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Using Accounting and Financing to Recover the Value of Natural Capital

Martinez Oviedo, RJ; (2018) Using Accounting and Financing to Recover the Value of Natural Capital. Doctoral thesis (Ph.D), UCL (University College London). Green open access

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Abstract

The value of natural capital in countries around the world, including the UK, has been continuously decreasing due to the degradation of natural resources. The lack of accounting and nancial mechanisms dedicated to measure and recover the value of natural capital, combined with low investment allocations from private investors, have been a determinant factor contributing to this decline. Given this consideration, the present work de nes three objectives in relation to natural capi- tal accounting and nance. First, to investigate the use of natural capital accounts to study changes in natural capital value and identify the major factors impacting the risk of declining natural capital and wealth using the case study of the UK. Second, to analyse the performance of investments in natural capital assets. Fi- nally, to examine the use of Sovereign Wealth Funds as a nancial mechanism to dedicate major investments in natural capital. In relation to the rst objective, a stochastic model for risk analysis is developed to estimate changes in UKs wealth using data on produced, human, and natural capital asset values reported by UK authorities between 1992 and 2012. Results show that natural capital losses in the UK have been mainly driven by a decrease in value of non-renewable natural capital, together with variations in the value of ecosystem services. Nevertheless, as non-renewable natural capital reach depletion, focus shall be given over coming years to recover renewable natural capital. As part of the second objective, the present work evaluates the performance of investments in real and non-real natu- ral assets and compare it with those of traditional asset classes using time series analysis of historical returns. The obtained results indicate that, when investing in natural capital, investors should focus on real natural assets as their nan- cial bene ts are higher than those from equities, bonds, real estate or even some infrastructure assets. Regarding the nal objective, this work models the invest- ment portfolio of an oil-based SWF using Norways Pension Fund Global as a case study and employs out-of-sample simulation technique to estimate global e cient portfolios while considering their relationship with oil prices. In this regard, the nal results demonstrate that SWFs are able to challenge their current allocation range in natural assets (2-5%) to a higher range (15-20%) while still bene ting from those investments. The overall conclusion from this research suggests that combining the importance of e ective natural capital accounts, the nancial ben- e ts of natural capital investments, and the role of nancial mechanisms such as SWFs is essential to increase the value of natural capital.

Type: Thesis (Doctoral)
Qualification: Ph.D
Title: Using Accounting and Financing to Recover the Value of Natural Capital
Event: UCL (University College London)
Open access status: An open access version is available from UCL Discovery
Language: English
UCL classification: UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Civil, Environ and Geomatic Eng
URI: https://discovery.ucl.ac.uk/id/eprint/10047385
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