Investors can learn a thing or two from the natural world


While humans have been learning from nature for thousands of years, a formal concept “biomimicry” – which seeks inspiration from nature to solve complex human problems – is more recent. Nature constitutes the source of inspiration for many new products and processes among diverse fields, for example, Tokyo’s rail system inspired by slime molds, Shinkansen bullet train inspired by the kingfisher’s beak and wind turbine blades designed based on humpback whales. These nature-based innovations will play an important role in the transformation towards our vision of a sustainable future.

Investors can also learn a thing or two from the natural world, according to Katherine Collins, the founder and CEO of Honeybee Capital and author of the book “The Nature of Investing: Resilient Investment Strategies through Biomimicry”. On May 9 Collins gave a lecture on “Finance & Biomimicry” in Amsterdam. The SFL co-hosted this event jointly with Triodos Bank, the VBA, the IUCN and biomimicryNL, Ministry of Economic Affairs and the RVO. More than 100 professionals from the financial industry, governmental agency and academia attended her lecture. With more than 20 years of experience in the commercial world of investing, she talked in depth about the biggest challenges the financial industry faces and showed how investors can think ‘outside the box’ by applying the principles of biomimicry to create an optimal and regenerative investment framework that is truly different from the mechanized one widely employed in practice.

At its core biomimicry revolves around a simple open question: WWND? What would nature do? Nature has sustained for 3.8 billions years. Natural systems provide the most proven and sustainable models. She urged us to reconnect to nature and draw upon the wisdom of nature for making investment, and in fact any decisions.

Risk vs. Uncertainty

The main challenge in investing is managing risk and preparing for uncertainty. Risk is a situation where the outcome is unknown, but the range of possible outcomes is known. Therefore, risk can be managed in a way that is predictable, rational and responsible. On the contrary, uncertainly, which may look like risk on the surface is a situation when we face “unknown unknowns”. The dilemma is that the protocol we relied on for risk management – automated algorithms, standardization and predetermined processes – are exact the opposite of what is required to handle uncertainly. In time of uncertainly we need to build a resilient, adaptive and flexible system which nature has 3.8 billion years of wisdom to offer. The guiding principle is to define the function we have to perform and think how nature would perform this function in this context.

Diversity, Redundancy & Resilience  

Diversity, which refers to the mix of forms and processes that exist to perform a particular function, is proven to be a key component of a resilient system. Diversification, or in other words “Don’t put all of your eggs in one basket” is one of the basic building blocks of modern portfolio management. However, Collins asserts that we live in a world with more baskets than eggs. There are more funds than securities in the US. The possibility of diversity has gone down dramatically. How to bring back diversity is something we need to learn from the natural system. Her idea is in line with the SFL project on the diversity of the financial system.

Redundancy is another vital element of a resilient and adaptive system. For example, sea slugs eat toxic substances around them. Instead of being poisoned, they released those toxins to protect themselves from the predators. This type of adaption allows sea slugs to thrive in threatening conditions. Following a similar reasoning, Collins points out that in time of crises, those financial assets that protect us from big loses are not those we pay much attention to during normal times.

To an investment world obsessed with complexity, obscurity and opacity, Collins has offered us an elegant path inspired by nature. As appealing as it seems, how to integrate biomimicry into actual investment practices in a systematic manner remains a promising, yet elusive endeavor for investors. Collins does not have all the answers yet, at least she has invited us to think through with her on the question – what would nature do?

 

Geef een reactie

Het e-mailadres wordt niet gepubliceerd. Vereiste velden zijn gemarkeerd met *

Time limit is exhausted. Please reload CAPTCHA.