The Natural Environment Agency Theory (NEAT) - An Overview - Amama Shaukat - ASWQ V3I2 - March 2025

This research highlights how environmental degradation threatens both societal and business health. Drawing on the 2020 World Economic Forum report, the authors emphasize that over half of global GDP‚ approximately $44 trillion at risk due to nature loss. The paper introduces the concept of Natural Environmental Agency Contracts (NEACs), which describe the misalignment of incentives between businesses and society regarding environmental stewardship. The authors argue that reducing and reversing NEACs is strategically beneficial for businesses, improving both financial performance and reducing risk. Through empirical analysis of US firms, they show that societal monitoring (e.g., news coverage, analyst scrutiny) and environmental incentives (e.g., green awards, ESG-linked compensation) positively influence environmental performance and disclosure. This improved "bonding" between firms and stakeholders supports sustainability and financial resilience. They advocate for clear environmental reporting standards and cost-effective regulations to incentivize businesses to act on pressing planetary threats.