Introducing the Time Value of Action

The Toha Network is incentivising urgency by enhancing the returns of early investments into climate action and nature-based work.

Urgent action on climate change and the regeneration of nature. As much as possible. As soon as possible.

This is why Toha has developed a new economic design principle, the Time Value of Action (TVA), to redirect markets toward the present. TVA gives greater value to action today than the same action in the future. 

You can play with Toha’s TVA Calculator here, but first let’s explain the whys and whats of  TVA.

What’s the big hurry?

In the race to stem ecological crises, time is our most scarce resource. 

The longer we underreact to climate change and biodiversity loss, the more drastic our eventual response must be. 

As businesses are learning from their climate-related risk disclosures, a late and rapid transition is likely to be disorderly and costly, plagued by supply chain bottlenecks, heavy-handed regulation and societal disruption. Early action smooths out the transition process and minimises the investment required, in addition to mitigating the future costs of climate change and biodiversity loss.

In considering the case for urgency, New Zealand Inc. needs to consider the following data points:

• Current policies globally are projected to result in 3°C of global heating over the twenty-first century. Implementation of collective commitments under the Paris Agreement could restrict heating to 2.5°C–2.9°C, but still well beyond its goals of staying well under 2°C and ideally under 1.5°C. To avoid these dangerous levels of global heating, countries including New Zealand need to scale up both action and ambition. 

• Like many other countries, New Zealand assumes a significant volume of offshore mitigation to achieve its commitments under the Paris Agreement. A recent analysis by the New Zealand Government estimated the fiscal cost of offshore mitigation as $18.3–23.7 billion in a high-cost scenario, or $3.3–4.2 billion in a low-cost scenario. It is also highly uncertain that New Zealand will ever access units at that volume, because under the Paris Agreement all countries have targets to meet. Early action reduces these liabilities and risks, including the loss of market access for our primary products that may accompany non-compliance.

• There is strong evidence that existing economic analysis has severely underpriced the risks of climate change. Even now, at 1.2°C of heating, with extreme weather events occurring at greater intensity and frequency, the world is already experiencing hundreds of billions of dollars of losses to assets and economic productivity, disruption of supply chains, degradation of marine and terrestrial ecosystems, and associated stress and misery. One recent analysis estimates that the world economy is committed to an income reduction of 19% by 2050 irrespective of future emission choices.

• There is also strong evidence that conventional economics has underestimated the benefits of early action. The sooner we invest in new technologies and practices, the sooner we start the learning processes that drive down their costs, such as knowledge spillovers and network effects. Early action makes subsequent action cheaper and more effective. 

• Climate adaptation takes time to achieve. This is especially true for ecosystem-based adaptation, such as the restoration of vulnerable landscapes and waterways. Nature-based solutions like forests and wetlands become harder to establish if extreme weather is already more frequent and intense. Restoring landscapes preemptively offers the greatest chances of success.

An underreaction to crisis

If it is rational to act sooner rather than later, why haven’t we already done so? 

In part, because our economy is geared for short-termism. 

As observed in the Sustainable Finance Forum’s 2030 Roadmap to Action: ‘Traditional financial models and economic theories… tend to judge performance with a short-term horizon.’ Standard practices like discount rates in investment decisions ‘heavily favour short-term financial performance’. Consequently, the modern economy tends to overvalue inaction and delay by underpricing future risks and opportunities.

This reflects the principle of Time Value of Money (TVM), which holds that a sum of money is worth more now than the same sum at a future date. This is because today’s money has earnings potential in the interim and is exposed to fewer risks. Thus, TVM tilts the economy toward maximising profits in the present. When natural and social capital are managed under this logic, TVM foregrounds the benefits of extracting value from ecosystems and communities, and downplays the long-term risks of doing so.

Short-termism is baked into modern market design – but we can always design better markets.

Valuing action today over tomorrow

Toha’s Time Value of Action (TVA) encourages short-term action for long-term value. This reflects Toha’s roots in te ao Māori, which emphasises the importance of mokopuna decisions, of intergenerational thinking and doing. 

To reward this future-oriented action, we built TVA into the design of Toha’s dual-token payment system (see our earlier post). This happens through the interaction between our two digital tokens, MAHI and TOHA, which work together to support frontline action for nature:

• MAHI is a digital token that enables payments for work in service to nature and climate. By purchasing the token, the buyers of MAHI are releasing secure funds for frontline action, as well as funding the development of Toha’s platform infrastructure and impact data technology.

• TOHA is a network token which generates rights to data and governance in the Toha system. Holders use TOHA to pay the transaction fees to access, use and share data in the system. TOHA also grants governance rights to influence the future direction of the market cooperative.

• MAHI holders can acquire TOHA by way of a token swap. In short, MAHI can be converted into TOHA to take a stake in the collective impact market.

• To reward early movers, the rate of exchange in the currency swap is determined by TVA. A multiplier is applied to early action, but this multiplier is discounted over time as we approach 2030. So, the earlier MAHI is earned, the greater the value of TOHA it can be swapped for. You can explore this for yourself on Toha’s TVA Calculator.

TVA is kickstarting Toha’s marketplace by incentivising investment into early action. In our MAHI pilots on the East Coast, we are exploring the settings of TVA in the market, experimenting with what works in a spirit of open innovation. Subsequently, the market capitalisation of MAHI and TOHA will be managed by Toha to ensure that TVA can be paid for by the impact generated from these early actions. 

In this way, Toha is substantiating the value of regeneration and climate action, so that funders are exposed to immediate value, as well as the future value of intergenerational stewardship. This serves as a counterweight to the prevailing tendencies of the wider economy, which discounts future risks and opportunities.

By tilting the Toha system toward generosity for future generations, we hope to show how economies might be re-geared to deliver better outcomes for people and planet.

Further reading

Wellbeing budgets and the environment: A promised land? : A 2021 inquiry into economic analysis by the Parliamentary Commissioner for the Environment which includes discussions of time, discount rates and intergenerational value by John Reid, Jason Mika and the Commissioner himself.