Financialising the African Green Wall

What have assets, puppies and desertification to do with the Wall St. Consensus (WSC)?

Is it futile to first “transform the financial system” – to save the ecosystem?

No, is my firm riposte. The assumption made is that far more urgent and ‘doable’ tasks can and must be undertaken to save the planet. But each day brings news of financiers relentlessly exploiting nature and the planet while pretending to conserve it. Their aim? To use capital to extract future income from nature’s value as a finite asset class.

What do I mean by this?

Asset classes (or investment asset classes) include equities (stocks and shares), government and corporate bonds, university accommodation and other forms of real estate, commodities (oil, soya beans, pork bellies) and works of art – to name but a few.   

The point is this: assets generate future income for the investor. To buy or invest in a government bond is to lend money to the government in exchange for future flows of interest into your bank account. To invest in a buy-to-let is to expect future rent flows. To invest in stocks and shares is to assume future dividend flows and capital gains when shares are sold in the future. To invest in a work of art assumes the work can be sold in the future for more than it cost – generating income or a ‘capital gain’.

The point about these future income streams (rents) is they are gained almost effortlessly. They are not earned. Such investors are ‘rentiers’.

Today financialisation of every aspect of untouched wilderness is pursued relentlessly by rentiers. If some aspect of nature is not yet an asset, you can bet they’re trying to turn it into one.

Take one home-grown example. Until recently pet puppies were not assets. Unexpected litters were given away freely by homeowners or passed on to rescue homes. Now rentiers have turned cute puppies into increasingly valuable assets – as the dog thieves of London parks would attest.

Puppies can be grouped into domestic assets and commercial assets. A BBC2  programme , This Farming Life (20 September, 2020) profiled an entrepreneurial woman farmer who breeds sheepdogs. With only a modicum of effort on the part of a vet, her prize sheepdog’s semen is regularly extracted (farmed) bottled and sold on at a substantial sum. At a local, but newly globalised market for sheepdogs, the farmer subsequently sold her dog to a rich American, who bid via the internet and paid a record £16,000.  Globalised capital inflates asset prices on the sheepdog farm (just as it does for London property and first-time buyers) crowding out local shepherds and farmers.  The beneficiary, the diligent farmer (who to be fair, invests time and energy in her dog) thus extracts capital gains from her ‘asset’ – one of nature’s animals - several times over.

But here’s why this form of financialisation matters. Last week, in some good news to emerge from the One Planet Summit  France and Costa Rica launched, among other things, The Great Green Wall Initiative. That suggests $10 billion new funding for an existing, bold, African-led tree planting initiative across that great swathe of desertified land that is the Sahel and Sahara. (My friend Wangari Maathai (1940-2011) won the Nobel peace prize for her heroic tree planting work with women’s groups across Kenya’s vast plains of eroded soil.  I regard The Great Green WallInitiative as her direct legacy.)

But there is a catch to this good news. The money will not take the form of grants or aid by France or the countries that launched the Initiative. Buried deep in press releases and communiques and expressed in bureaucratic gobbledegook, lay the real story behind the $10 billion. The Great Green WallInitiative has been transformed (by the UNCCD) into the Land Degradation Neutrality Fund:

New financial instruments and intermediaries, as well as enabling conditions, are needed to catalyze private capital to attain land degradation neutrality (LDN). For this reason, Decision 3/COP.12 requested the Global Mechanism (GM) to develop options for increasing resources for the full realization of LDN initiatives, including the “creation of an independent Land Degradation Neutrality Fund (LDN Fund)."

Followed by this predictable fact:

A private sector investment management firm Mirova, an affiliate of Natixis Investment Managers dedicated to responsible investing, was selected competitively to manage the LDN Fund. Officially launched at UNCCD COP 13 in Ordos, China, the LDN Fund is the first-of-its-kind investment vehicle leveraging public money to raise private capital for sustainable land projects.

Public money means taxpayer money. Leveraging public money, means using taxpayer money to lure private rentiers into profitable efforts to save the planet. What form does ‘leveraging’ take? That has been well explained by Prof. Daniela Gabor and colleagues in a series of research papers [1] that outline what Gabor has defined as the new Wall St. Consensus (WSC).

Under the Wall St. Consensus, private finance will be mobilised (by amongst others the World Bank and UN) to help poor countries tackle climate breakdown and the loss of biodiversity - on the following terms. That the state (i.e. taxpayers) “risk-proof” private investment in what are now defined not as ‘tree-planting’ but as ‘development assets’.

Think about that. Free market capitalism of the Adam Smith variety is based on a simple thesis: those with capital will take risks and are rewarded with profits, or capital gains. If risks prove flawed, then the capitalist will face losses. In this way, risk-taking will be disciplined, and capitalists will learn to invest wisely. That is the ideology. Soviet economic ideology was the opposite: markets would be protected from all risk, and nationalised industries could not make losses.

The Wall St Consensus bears a closer resemblance to the Soviet, rather than the Adam Smith model.

As Gabor and her colleagues explain: by taking risks on to their balance sheets, states (like France and Costa Rica) protect private institutional investors. These risks include the demand (of lack of demand) attached to commodified (social) infrastructure assets;  political risk attached to policies that would threaten profits such as nationalization, higher minimum wages and climate regulation The state (i.e. taxpayers) will also protect the private sector from climate risks that may become part of regulatory frameworks; and from bond and currency markets risks that complicate investors’ exit.

In other words, the private sector is only prepared to lend/provide capital for the planting of trees in the Sahel, if those loans and the flow of rents from such investments, are guaranteed by taxpayers in rich countries.

There are two things wrong here: first private capital expects to extract ‘rents’ from the greening of the Sahel – and that can only mean further extraction of Africa’s finite human and natural assets, worsening the crisis. Second, while the funds for the greening of the Sahel are not directly granted by taxpayers in the states participating in the initiative – they are nevertheless on the hook for private losses.  

Financialisation is the stealthy exploitation of the earth – and taxpayers – for private capital gains. It is not a sustainable system – because it relies on continued exploitation of the planet’s finite assets. It must be radically transformed and subordinated to the interests of the planet and humanity.

End.

[1] Yannis Dafermos , Daniela Gabor & Jo Michell (2021): The Wall StreetConsensus in pandemic times: what does it mean for climate-aligned development?, Canadian Journal of Development Studies / Revue canadienne d'études du développement, DOI: 10.1080/02255189.2020.1865137