Looking up towards the peak of Everest

29 May 2024

Investing in nature – because it’s there

Harold Hutchinson | Managing Director, Alternative Energy at Investec

As we remember George Mallory’s final attempt on Everest a century ago, Harold reflects on the wildness of nature, and some enduring investment lessons embedded in it.

One hundred years ago, the explorer George Mallory departed high camp for the summit of Everest, along with his colleague Sandy Irvine. We are still unsure if they made it to the top, last seen disappearing into gathering clouds. Nature is often called our friend, but its wildness makes a mockery of this comforting metaphor. Rapid weather changes are just one manifestation of its overwhelming power exposing our human frailty and fragility.

Yet within this observation lies hope, not despair – nature leaves clues about fragility, and how to deal with it. The lessons apply not just to climbing mountains, but more generally to the capital expenditures on physical, social and natural assets that support our survival.

We might be tempted to believe that the best response to our frailty always consists of investing in robust structures which are able to resist the challenges we face in the natural world. Many investment plans proceed on this principle. However, at times this encodes a fatal flaw. If we invest in something that is wholly inflexible, it is open to the risk of catastrophic collapse in unforeseen circumstances.

While a robust piece of infrastructure is able to function up to anticipated thresholds, it may be compromised in unanticipated circumstances. Indeed, there is a deeper problem. Whole systems, not just individual assets, may be disrupted via cascading effects in these circumstances. The recent Baltimore Bridge debacle in the US is a reminder of how damage to one asset can affect much larger networks. Core assets in the infrastructure and natural worlds exist within systems, and a holistic view is crucial in their design.

So, if robustness is not a foolproof antidote to fragility, is there something better we might consider?

Nassim Nicholas Taleb* argues that the opposite of fragility is not robustness but anti-fragility. This is a nuanced concept appearing in various guises. For our purposes, it encompasses the property of optionality, allowing a role for learning over time by experimentation. Sometimes, anti-fragility may not only avoid a catastrophe, but allow a system to grow stronger, not weaker, following shocks.

Optionality is evident everywhere in nature, including in that most complex system, the human brain. Despite being an organ dedicated to making connections, it is divided down the middle! Two asymmetric neuronal masses are “separated enough to function independently, but connected enough to work in concert with one another, each capable of sustaining consciousness on its own” (Iain McGilchrist*). Sufferers of a stroke benefit from the structure.

The flexibility afforded by options is crucial to ensure enduring investment success. Indeed, optionality is implicit in the very word investment which is derived from the Latin vestis (clothing). Even when packing our suitcases for warm summer holidays, the wise will include a pullover in case the unexpected occurs.

What about our investments in nature itself? It is widely acknowledged that we need to cease our ongoing destruction of the earth’s natural capital. The Dasgupta Review, prepared for the UK Treasury, makes sober reading: “Estimates of our total impact on nature suggest that we would require 1.6 earths to maintain the world’s current living standards”.

A common response is that we need to increase the rate at which we invest in nature as a solution. But the ‘how to’ question is not easy to answer. The biosphere is so complex that it is only dimly understood, even by those dedicated to studying it. In many cases, we are uncertain what the full value of nature’s bounty is, including its diversity – a lot for sure, but exactly how much? We have still a lot to learn.

What we do know is that, with nature, once the damage is done, it is usually very costly (in time and money), or even impossible to restore its earlier state. Thankfully, nature offers us a very low-cost investment option as an antidote – conservation.

To leave an ecosystem, such as a forest, alone for a period might not sound like an investment, but it most definitely is, as it increases its ‘stock’ at the modest cost of conservation measures. Indeed, the strategy may yield huge asymmetric upside if our future learning shows greater hidden value than we understand today. We keep our options open, allowing time for discovery. The message is true for all of nature’s ecosystems. This is one good reason to support the United Nations ’30 by 30’ target, to protect 30% of the planet for nature, by 2030.

In the end, whatever Mallory’s precise fate, he ran out of options. Perhaps his “because it’s there” spirit demanded that he beat an irreversible path forward to the summit of Everest. However, in many cases, nature offers us plenty of low-cost options as we seek to survive in an uncertain world. Conserving a part of nature itself does not seem a bad place to start.


* Further reading:
Nassim Nicholas Taleb: Anti-fragile: Things That Gain from Disorder
Iain McGilchrist: The Matter with Things: Our brains, Our delusions, and the Unmaking of the World

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Disclaimer: The blog does not aim to give investment advice, but is designed to afford relevant longer-term context to investors, encouraging a broad perspective where uncertainty is high and a spirit of learning is important. The views expressed are those of the author, not those of Investec.