Environmental Securities and Risk

I read an interesting critique of the current U.S. economy…the general premise was that a significant amount of American finance has replaced investments in real goods and services with investments in financial derivatives (investments in ‘repackaged money’).

This is a cautionary tale…the more abstract our economy becomes, the more risk our society assumes.

I’ve also read the pros and cons of speculation as ‘indicators’ of where economic sectors are going…and the pros and cons of options and derivative investments to hedge against risk.

As I thought, a light went on about environmental investments. With prudent assessment and valuation, environmental securities have very knowable risk profiles, and the ability to accumulate valuable assets becomes easier than in other securities markets.

I note than there is significant emphasis in the carbon market on environmental registries, and they are important. They need to not only use great care in processing these environmental securities, but go further than merely registering ‘qualified’ credits, etc. In order to reduce risk, we need to connect the security knowably (quantifying both environmental return and risk) to the environmental processes and outcomes that underlie the security.

Is adequate work being done in that area? If it is, environmental markets will surpass other markets because they are the most stable investments.