Natural Asset Beta

TL;DR

This paper introduces a novel asset beta concept for natural resources, linking physical stocks to monetary valuation, aiding sustainable resource management and corporate finance decisions.

Contribution

It extends a theoretical model to develop a new asset beta measure for nature, enabling monetary valuation of natural resource stocks and flows.

Findings

Preliminary proof of concept using real-world data.

The new asset beta shows potential for valuation and decision-making.

Future research needed on estimate sensitivity.

Abstract

Natural capital accounting is important to efforts that attempt to measure the value of nature to decide on how best to trade-off natural resource productive use and conservation. Much work on measuring reciprocal physical stocks and flows of natural resources between nature and the economy has occurred. However, the current open problem of translating natural resource physical stocks and flows into monetary ones presents a barrier to estimating opportunity costs to inform resource allocation decisions. The research reported here extends a theoretical model on economic sustainability and derives a novel asset beta notion for nature. Like traditional firm asset beta notions, this underpins corporate finance notions for nature. Supply and demand curves estimating the exchange value of the natural resource are possible. A real-world data set is utilised for a preliminary proof of concept test. The results show promise, but future research is suggested investigating the sensitivity of the estimates.