The Dragon Ecosystem - Extractivist Corporations - Money and Information-- Stranded reserves
Corporate Dragons consume material resources and produce waste just like biological beings. They also exist in their own world, consuming and emitting money and information.
Money is really just a *kind* of information as can be seen if everyone suddenly thinks a resource companies ("extractivist") reserves are "stranded". This has an immediate effect on the balance sheet and (therefore) the value of shares. Shareholders take an immediate "hit" without any offset appearing anywhere except as a corporate "write down" (and "expense") but the money is gone. For this reason, there are strong incentives for the company to minimize or hide information that would lead the public (shareholders in particular) to believe resources are stranded. Simply confusing the issue (misinformation) on Climate Change and the need to "leave it in the ground" translates into real shareholder value.
The reverse is also true. Shareholders hope that a resource company will discover or develop new reserves at a profit. The value of shares accordingly increases. The profit can be turned into real money by selling the shares. For this reason, there are strong incentives for the company to exaggerate the information concerning the profitability of new resources are profitable. It is also important for such announcements to ignore the contribution to Climate Change that extraction of the newly found resources will inevitably make.
The same principals apply when the extractivist corporation borrows money on the bond market. Its ability to repay the loan depends directly on what the lender thinks the corporation can earn *in the future* -- from its reserves. If the lender is skeptical about reserves, the interest rate will be high or perhaps nobody will buy the bond at all, closing off a source of cash for the corporation. Again, there are incentives for the corporation to over-state the value of reserves and completely ignore "leave it in the ground" policies necessary to combat Climate Change. Institutional *buyers* of corporate debt have incentives to bury their heads in the sand -- to avoid letting the public know that huge amounts of money (sometimes from bank deposits) cannot be repaid without extracting and burning fossil fuels.
Money is really just a *kind* of information as can be seen if everyone suddenly thinks a resource companies ("extractivist") reserves are "stranded". This has an immediate effect on the balance sheet and (therefore) the value of shares. Shareholders take an immediate "hit" without any offset appearing anywhere except as a corporate "write down" (and "expense") but the money is gone. For this reason, there are strong incentives for the company to minimize or hide information that would lead the public (shareholders in particular) to believe resources are stranded. Simply confusing the issue (misinformation) on Climate Change and the need to "leave it in the ground" translates into real shareholder value.
The reverse is also true. Shareholders hope that a resource company will discover or develop new reserves at a profit. The value of shares accordingly increases. The profit can be turned into real money by selling the shares. For this reason, there are strong incentives for the company to exaggerate the information concerning the profitability of new resources are profitable. It is also important for such announcements to ignore the contribution to Climate Change that extraction of the newly found resources will inevitably make.
The same principals apply when the extractivist corporation borrows money on the bond market. Its ability to repay the loan depends directly on what the lender thinks the corporation can earn *in the future* -- from its reserves. If the lender is skeptical about reserves, the interest rate will be high or perhaps nobody will buy the bond at all, closing off a source of cash for the corporation. Again, there are incentives for the corporation to over-state the value of reserves and completely ignore "leave it in the ground" policies necessary to combat Climate Change. Institutional *buyers* of corporate debt have incentives to bury their heads in the sand -- to avoid letting the public know that huge amounts of money (sometimes from bank deposits) cannot be repaid without extracting and burning fossil fuels.
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