Planetary Boundaries Breached
6 / 9
Climate, Freshwater, Nutrients, Biosphere, Land, Novel Entities
Terminal Value at Risk
Majority
DCF models overstate value in overshoot zones
WACC Inflation
↑ 1.8-3.5%
Biophysical risk premiums, downgrades, compliance
Legal/Regulatory Events
Accelerating
Taxes, caps, liability regimes
Sectoral Exposure to Boundary Constraints
SectorKey ConstraintValuation ImpactRisk Level
AgricultureWater, Phosphorus, NitrogenMargins collapse under water/nutrient capsHigh
Cement and ConcreteCO₂, Land, WaterTerminal value at risk from climate, land, waterHigh
TextilesWater, LandSupply chain volatility, insurance withdrawalMedium
Biotech / Novel EntitiesPFAS, PlasticsExistential risk from regulatory bansHigh
InfrastructureSea Level, MonsoonDepreciation shocks, stranded assetsMedium
Terminal Value Fragility Meter
Risk of Irreversible Devaluation
Most DCF models overstate terminal value in boundary-exceeded sectors.
Stress Test: Valuation Under Constraint
DCF: Cash flows must be structurally re-rated downward as boundary regimes shift. Incremental tweaks to terminal growth rates are insufficient; regime shifts in operating assumptions are required.
Innovations in Valuation Methodology
Biophysical Stress-Adjusted DCF
Cash flows are conditioned on ecological state variables, using satellite and in-situ data to dynamically update projections as boundaries are approached or breached.
Ecological Carrying Capacity Pricing (ECCP)
Inputs are priced at system-level replacement cost under depletion, not marginal cost, reflecting true scarcity and replacement risk.
Sustainability-Adjusted EBITDA
Core profitability is normalized by subtracting ecological externalities, environmental fines, or boundary-specific subsidies.
Risk-Weighted Residual Income Models
Earnings are adjusted for exposure to planetary thresholds, with higher penalties for firms operating in multi-boundary transgression zones.
Key Insights:
  • Conventional valuation models systematically overstate asset value in a boundary-constrained world.
  • Terminal value is the most fragile element-subject to abrupt regime shifts, not incremental decline.
  • Sectoral risk is highly heterogeneous; agriculture, cement, and biotech are especially exposed.
  • Advanced methodologies (stress-adjusted DCF, ECCP, sustainability-adjusted EBITDA) are needed for robust valuation under ecological constraint.
  • Fundamental analysis must now integrate ecosystem dependence, boundary proximity, and legal risk forecasts from biophysical projections[9][10].

Valuation and Capital Markets Under Constraint