On Planetary Solvency, Antifragility, and Market Development

Hi everyone,

Welcome to the March edition of the Carbon A List newsletter. Do you know someone who would enjoy our newsletter? Forward this email to them and they can subscribe here.

On planetary solvency

The Institute and Faculty of Actuaries recently put out a thought-provoking report: “Climate Scorpion — the sting is in the tail”, where they coined the phrase “Planetary Solvency”. This concept applies an actuarial approach of capital modeling to the climate crisis to manage the risks to ensure that the planet doesn’t become insolvent. In effect, it mimics what insurance companies do: protect policyholders by making sure assets (reserves) exceed liabilities (losses). Planetary Solvency views nature as an asset, with society as part of that asset, and encourages the insurance mindset to drive management actions aimed at mitigating the risk, and maintaining equilibrium. As illustrated in one of the report graphics below, clearly, we live on a planet where climate change is a driver for many interrelated economic, social, and environmental risks. This makes understanding the cascading risks, and reducing model uncertainties ever more important (especially given that we’ve gone beyond 6 of the 9 planetary boundaries).

Since we’re actively working on a year long resilience project uncovering decision making frameworks, we can’t help but apply concepts of resistance, a system’s ability to change while retaining identity or performance; recovery, time for system performance to return to a desired state, and robustness: probability that a system maintains identity and does not cross a undesirable threshold, as necessary elements to include in a planetary solvency framework and for consideration in the drivers above.

On antifragility

Related to ensuring planetary solvency, and avoiding the cascading tipping points from interconnected risks, is the need to identify and uncover system interventions that embody antifragility (or in resilience speak: “sustained adaptability”). The term first showed up in Nassim Taleb’s book, “Antifragile: Things that Gain from Disorder”. In Taleb’s words “‘Fragility’ can be defined as an accelerating sensitivity to a harmful stressor: this response plots as a concave curve and mathematically culminates in more harm than benefit from random events. ‘Antifragility’ is the opposite, producing a convex response that leads to more benefit than harm.” Things that are antifragile benefit from randomness, uncertainty, and variation. However, unlike planetary solvency–which focuses on avoiding collapse and enhancing resilience to maintain equilibrium, antifragility embraces the chaos, and hopes it makes us stronger.

For example, consider the agricultural sector’s response to drought. A planetary solvency approach might focus on water conservation measures, drought insurance, and the development of drought response plans to safeguard against the risk of water scarcity and ensure the agricultural system’s ongoing viability. These strategies aim to protect the “assets” (productive capacity, biodiversity) against the “liabilities” (crop failure, soil degradation) caused by drought.

In contrast, an antifragile approach moves beyond resilience and would seek opportunities to use the stressor — drought — as a catalyst for positive transformation. This could involve adopting and scaling conservation agriculture practices that not only make farms more drought-resistant but also improve soil health, increase biodiversity, and potentially open new revenue streams (e.g., ecosystem service credits).

Becoming antifragile requires considering second and third order consequences. In this example, adopting drought-resistant crops and efficient irrigation technologies directly reduces water use and maintains yields (first-order consequences). Over time, these practices can lead to economic resilience, as farms save on water costs and reduce the need for emergency interventions, while also improving soil health through reduced tillage and enhanced soil structure. This not only conserves water but also boosts the land’s productivity and biodiversity (second-order consequences). Ultimately, these changes can foster a broader transformation within the agricultural sector, driving innovation in sustainable farming practices, influencing policy, and encouraging a shift in consumer preferences towards more resilient and environmentally friendly products. This systemic shift enhances the overall sustainability of the food system, contributing to global efforts to combat climate change and protect natural resources (third-order consequences). Farnam Street Media’s graphic below helps with a simple — and highly transferable — mental model to think about these consequences on face value aren’t necessarily all good, or bad.

On market development

Market creation and market development have been critical components for farmer income and livelihoods. This is especially important right now as net farm income is falling (figure below). These trends are expected to continue for the next several years as global market forces are projected to increase row crop commodity supplies (especially coming out of Brazil).

We are thinking and actively working on market development in several areas at Carbon A List. Our USDA Climate Smart Commodities Project and the Land Use Change Initiative are two examples.

The Transform project is actively creating markets at several points in agricultural supply chains — and across geographic scales. Together with partners and to be determined processors, the transform project is piloting micro-supply chains at local scales to increase market channels and farmer returns for farmers selling climate smart commodities. Downstream, we are working with project partners to develop new, end-use marketing channels to increase market growth and awareness for climate smart commodities with consumers.

Within the LUCI, we know LUC assessments play a pivotal role in shaping resource management decisions and policy formulation. Many stakeholders are directly affected by LUC, and consumers also ultimately feel an impact. LUC has far-reaching implications for biodiversity, water security, food security, energy security, ecosystem resilience, and other vital ecosystem services. The very nature of LUC, along with its estimations, can significantly influence the livelihoods of farmers and ranchers as well as rural and Indigenous communities.

In recent years, land use change LUC estimations have impacted the sustainability ratings of American agricultural producers on the global stage, restricting access to some international markets. We are working to build consensus to drive market access and development to bring direct benefits for farmers and ranchers. In plain english: agreeing on metrics that quantify environmental good or harm helps markets drive change, and helps reward farmers who are contributing to said environmental goods.

What we’re working on

Last week, Nick attended and spoke at the UNC Clean Tech Summit. This event brought together experts in business, government, and academia from across the world to foster growth and leadership in the Southeast US’s cleantech economy. He spoke about our collaboration with the USDA and other industry partners to develop end-to-end supply chains for climate-smart commodities — supporting farmers as they pursue new markets in climate smart agriculture.

We’re hosting a deep dive on “a discussion of soil health incentives” on April 24. Do you have a perspective on the funding landscape or are trying to learn more? Join us and collaborator Patrick Smith of Soil Upside for what is sure to be a lively and informative event!

Are you looking for a thoughtful community tackling complex problems and want to be more behind the scenes to the referenced work in this newsletter? Join the Trailpass community to get access to full recordings of all the calls the network has had so far, and engage with emerging knowledge hubs coming out of it.

Applications for the Manure Management Incentive Pool for the Transforming the Farmer to Consumer Supply Chain project are closing March 29th. Eligible producers are encouraged to apply here.

What I’m reading

• Climate Scorpion — the sting is in the tail. Actuaries.org (referenced above)
• Second-Order Thinking: What Smart People Use to Outperform. Farnam Street Media (referenced above)
• Realizing Resilience for Decision Making. Nature. An excellent article that shares important terms, and adds another useful mental model to complement ideas around planetary solvency and antifragility.
• Scaling Regenerative Agriculture: Levers for Implementation. Sustainable Markets Initiative. This is a good read for those who think about the role finance has to play in driving regenerative agriculture, and if for no other reason to be reminded that there is no one size fits all solution.

Can you help?

In the very near future, we’ll be hiring for the following contracts and Subject Matter Experts (SMEs) roles to help with our Transforming the Farmer to Consumer Supply Chain project.

• GHG Accounting SME
• Conservation Ag SME
• Market Development SME
• Executive coach
• IT expert
• Soil Sampling

Please fill out this expression of interest form to be on the top of our list to reach out to when the position goes live!

Signed,

Christophe