The Natural Asset Hydra

The New York Stock Exchange (NYSE) recently proposed a radical rule to amend its manual for listing public companies to include a new form of corporation called a “natural asset company” (NAC). 

Last Thursday however, the NYSE withdrew its own proposed rule without explanation, just a day before the Securities and Exchange’s (SEC) public comment period closed. Despite this victory, elements of the NAC rule will likely resurface in other forms, including “natural capital accounts.” 

Much like the tenacious Hydra of Greek myth, cutting off the head of the proposed rule has only caused three other proposals sprout up in its place, spread across 27 federal departments by the Office of Management and Budget (OMB), Office of Science and Technology Policy, and the Department of Commerce. We may never see an end to this governmental push to redefine and quantify natural assets. How did this come about?

On first glance, the NAC rule appeared to be part of routine procedure, since in times past, the NYSE has amended its Manual for introducing private companies into the public marketplace multiple times. But in this case the NYSE was not seeking to list an existing private firm. Rather, the Exchange was attempting to achieve something quite radical: superseding congressional and state legislative authority to create a new corporate form (NACs) out of thin air. 

In 2021, the NYSE formed a controversial public-private partnership with the Intrinsic Exchange Group (IEG), in an attempt to launch a new type of corporation. IEG envisioned NACs acquiring public and private lands but reserving their use exclusively for sustainability purposes in conservation or restoration of ecosystems. 

Had the SEC approved the rule, the NYSE would have provided a special fast track to create and list public NACs, bypassing the entire state incorporation process. NACs would’ve been effectively incapable of generating normal profits for shareholders, as the rule prohibited all commercial activities that do not advance “ecological performance.”

Nearly every submitted public comment, including mine, strongly opposed the creation of NACs. This near-unanimous opposition is evidence that NACs would not have been viable investment vehicles absent government intervention. 

This entire effort seeks to use the imprimatur of the NYSE and SEC as a way to generate investor confidence in an artificial government-created market, The IEG’s NAC proposal would remain nonexistent without the NYSE’s unwarranted intervention and the SEC’s approval.

My comment letter also cites a host of other irreconcilable problems with the NAC proposal. Among these is the fact that public benefit corporations already exist to achieve similar outcomes. The NAC rule also proved to be incompatible with the NYSE’s own listing standards, as NACs would not have met the entry-level numerical requirements for pre-existing corporate shares and shareholders. 

Additionally, the rule would have forced the SEC to compromise its core responsibilities to prevent fraud in the public markets, maintain fairness and efficiency in the markets, and to facilitate capital formation. 

This is because the rule would have radically altered the primary purpose of corporations—to generate shareholder return—by redistributing raised capital away from revenue generating commercial uses (mining, lumbering, grazing, etc.) and toward strict “sustainable” uses. Financial performance would be replaced with ecosystem performance, absent any realistic means for shareholders to accumulate returns on investment.

The NAC rule received severe pushback from elected officials at the state level, with a joint comment letter submitted by 25 state attorneys general. Additionally, Utah state treasurer Marlo Oaks penned an op-ed opposing the rule change in The Wall Street Journal. He described NACs as a precarious investment concept that would likely waste public resources without a reasonable expectation for producing profit. 

The state-level opposition was matched with federal pushback from Rep. Harriet Hageman (R-WY) and a joint letter by Senators Mike Crapo, Jim Risch (both R-ID), and Pete Ricketts (R-NE).

Despite this positive outcome, advocates of sound finance policy should be very concerned about this brazen attempt to redefine the corporate listing processes in the name of environmental, social, governance outcomes. We should be wary of future attempts by self-regulatory organizations to re-invent the corporate form outside of the legislative process.

The Biden Administration is already making its move to repackage NACs  via a new policy initiative called the “National Strategy to Develop Statistics for Environmental Economic Decisions.” The initiative introduces “natural capital accounts,” which reintroduces the unapproved United Nations Environmental Economic Accounting framework from the failed NAC rule. This system would be used as a tool for subjectively valuing ecosystem resources in federal policymaking. 

The hydra effect will be that after the NAC rule has been officially withdrawn, a new form of NAC-inspired accounting systems will be installed across 27 federal departments, agencies, and offices. Rather than being proposed as a federal rule to provide the public with proper notice and time to comment, the mandate is being imposed by fiat. 

This will serve to constrain the public’s ability to assess the initiative, while eliminating an the most significant opportunity to oppose the measure. Given that the public has already voiced strong opposition to NACs, this new strategy to impose natural capital accounts is inappropriate.

Organizations, lawmakers, and individuals should raise awareness of the Biden Administration’s new National Strategy on Natural Capital Accounts. This represents the next frontier in the ongoing battle against quantifying nonfinancial natural assets like ecosystems and upending established forms of accounting.