John Clippinger is a founding Director of the Open Earth Foundation, a non-profit focused on harnessing emerging tech and radical collaboration for a more resilient planet and a research affiliate at MIT’s City Science Group, which is exploring new models for urban architecture and personal vehicles He is a co-founder of Bioform Labs, a studio that uses novel AI technologies transition to a Web3 regenerative and inclusive economy; The Token Commons Foundation; Swytch, (now ClearTrace), a carbon and energy management software company; and the Institute for Data Driven Design (ID3) with Professor Sandy Pentland Clippinger, a graduate of Yale University who holds a Ph.D. from the University of Pennsylvania, was formerly a research scientist at the MIT Media Lab Human Dynamics Group. Earlier in his career he was a Senior Fellow and Co-Director of The Law Lab at the Berkman Klein Center at Harvard Law School and was the Co-founder and CEO of four AI and natural language processing companies and Director of Intellectual Capital at Coopers & Lybrand, now PWC. Clippinger is co-editor of From Bitcoin to Burning Man and Beyond; The Quest for Identity and Autonomy in Digital Society and the author of A Crowd of One: The Future of Individual Identity, and the Biology of Business. He recently spoke to The Innovator about why the world needs nature-based financial instruments and how that might impact companies and countries.
Q: What are you focusing on these days?
JC: How can we develop a system of certification that companies can rely on for voluntary and compliant ecological credits and offsets that are sufficiently credible as well as the financial mechanisms necessary to transition to an asset class that is nature- based and not correlated with the current fossil economy. As the world necessarily transitions to sustainable economic and production processes that reflect and mimic nature, there is the risk of companies being saddled with stranded asset classes, supply chains and processes. When those costs and risks are reflected in their market cap and in their borrowing costs, out of self-interest, they will make the transition.
Q: What, in your opinion, needs to be fixed, in the current system?
JC: The biggest criticism of the current system is that it lacks credibility, and it is cumbersome, opaque and complex. There are no accepted, credible, independent metrics. It is a recognized problem; when a company certifies that its supply chain is net zero it is according to which standard? There are multiple scoring systems out there. We need a common science-based framework that all people can agree on. In the beginning the measurements may be incomplete, but over time we can refine them. Satellite coverage, provided by companies like PlanetLabs, is providing us with ways to have ground (sky) truth certification. Mobile phones are also playing a role. We can use AI to recognize developments, time stamp them and certify them. We need to go beyond carbon offset and look at biodiversity. Some 70% of species have been eliminated over the past 30 years. Work is being done on an active accounting system by the UN’s and EU’s System of Environmental-Economic Accounting (SEEA) to audit impact on the biomass and on climate and come up with a common unit of measuring that can be tied into satellite imaging so we can get a benchmark understanding of where we are. This will permit us to create digital representations of biological systems that have real economic value and can be traded, helping us move to a regenerative and inclusive economy.
Q How might a nature-based financial instrument work?
JC: For example, an insurance company might determine that if a company can certify that x,y and z environmental actions will mitigate the risk of fires or flooding, it will issue a nature-based financial instrument that would finance actions to mitigate those risks. This will give companies the proper incentives and allow them to start putting nature-based financial assets on their balance sheets to demonstrate their resilience to climate change. Countries are also interested in doing this. We are exploring a project in Costa Rica. Some 30% of the land mass on Costa Rica is being preserved in nature reserves and their central bank is asking ‘how do we value the preservation of these natural assets and place a natural asset on our national balance sheet?’ Their thinking is that Costa Rica is contributing to the bio capacity of the planet and that should be reflected in the value of its currency and the exchange rate. The point is that keeping nature alive has a fundamental economic value and we need financial instruments to encourage and reflect that. What we need is a green version of Goldman Sachs. Currently our economic system is focused on extracting. It rewards destruction. We need to introduce different economic incentives that incentivize regeneration and climate resilience.
Q: How should companies be thinking about this?
JC: Companies should determine the real environmental cost of running their businesses, put it on their balance sheets and develop the mechanisms for how to deal with it so that they can become part of the new nature-based economy. They have got to prepare themselves for the transition and how it is going to impact their bottom line. This is going to impact every aspect of their operations and finances, so companies need to anticipate and plan for that.
Q: How can technology help?
JC: Digital twin technology allows companies to model new products and measure their environmental impact before launch at little cost. This gives companies a way to rigorously measure and manage risk. Just like the military simulates actions on a battlefield so that it can anticipate different scenarios and delegate authority and decision-making, digital twins will allow companies to anticipate scenarios in ways that they never could before. It is a much more efficient and data driven way to run an organization and can help companies avoid reputational, economic and legal risks.
Q: What advice do you have for corporates?
JC: Set up a working group to give yourself what the military calls situational awareness. It is a great methodology. Ask yourself whether you understand what is going on in your environment and whether you have the accurate models to interpret the information or if you are fighting last year’s war. Bring in diverse points of view and think through the implications. Push decision making out to the edge, to those closest to the situation.
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