Responsible Investment in the Space Sector: The Role of Investors in Sustainable Value Creation

Each time humanity has expanded its ability to utilize a new domain, investment and economic activity in that domain have followed. Space is rapidly becoming an economically important domain, attracting investment that is fueling the emergence of diverse activities such as in-orbit satellite servicing, space-based manufacturing and assembly, space resource development and human spaceflight, alongside established areas such as launch services and satellite services. Space-based technology, and the services and applications we derive from it, are critical for modern life and the proper functioning of many technologies we use daily. As global reliance on satellite services and applications grows, the importance of policies, practices, and technologies to maintain safety and stability in the space environment becomes increasingly critical to maintaining the societal and economic benefits of space activities in the future. Many of these societal benefits are provided by commercial space activities carried out in an expanding space economy and enabled by private sector investment.  

As both an operating domain and an investing domain, space has a number of unique risks and attributes that require special consideration in both investment and operational decisions in order to realize the full potential of the space economy.  These special considerations arise from the following characteristics of the space domain:

• Space is a strategic domain:  Interests and considerations of national governments, in economic, diplomatic, and national security dimensions, drive decision-making and funding decisions which significantly affect the direction of space programs. Geopolitical risk is an aspect of many space activities.  
• Space is a shared domain: Commercial space actors operate in a globally shared orbital environment that is in essence a limited natural resource and where the realities of physics and orbital dynamics dictate that the actions of one actor inherently affect the operations of other actors. Collective action risk is faced by all space actors. 
• Space is a harsh domain:  Space environment characteristics such as extremes of temperature, high levels of radiation, micrometeoroids, and the remote and difficult-to-reach nature of the locations of space assets pose unique operating challenges and costs for space companies. Changes in the environment can have an impact on mission assurance and risk. Moreover, the natural environmental hazards inherent in space operations can be exacerbated by additional anthropogenic hazards and risks that arise from the conduct of space activities.  
• Space is an uncertain domain: Operating and business conditions in space can be difficult to predict with confidence. Determination of the impact of natural environmental hazards, such as space weather and micrometeoroids, as well as the determination of spacecraft position involves inherent uncertainties. Space ventures are often long-term activities that require substantial upfront capital investment in speculative market areas. These factors add uncertainty that can affect returns and profitability.

All of these characteristics challenge business continuity, operational stability, and risk management in space ventures. In the space domain, short-term investment decisions can have unpredictable, long-term consequences for the space environment that can  in turn impact existing and future users of the domain.

‍Stewardship for the Space Economy

Growing the space economy - and generating investment returns from it - will be easier if the environment is stable. There are risks to this stability. These risks begin with natural hazards; space is a harsh operating environment in which naturally occurring factors, ranging from solar weather and radiation to micrometeoroids, can adversely affect the operations of satellites and other space systems.  Human activities are introducing further risks into this naturally-hazardous environment. The first is space debris - the defunct satellites, rocket bodies, and fragmented objects in space that no longer serve a useful purpose. A second key challenge is orbital congestion and the associated need for space traffic coordination. The orbits in which satellites and constellations operate – and the radiofrequency spectrum that they rely on to provide services - are limited natural resources that should be used rationally and equitably to ensure that space activities will continue to be viable, now and in the future.  Ensuring the long-term sustainability and  future viability of commercial space activities requires a stewardship approach to investing responsibly in the space economy.

Responsible investment recognizes that the consideration of potential value created by an investment opportunity should extend beyond the immediate financial return. Broadly speaking, it seeks to maximize investment returns and long-term value creation through investment while recognizing and considering the role of non-financial outcomes in investment performance. These non-financial aspects might include sustainability, governance, social, and environmental factors. Responsible investment practices are motivated by several factors, including financial performance, client and investment partner demand, regulatory and policy requirements, fiduciary responsibilities, and motivations for sustainability and benefit outcomes. Not all investors following responsible investment goals share the same motivations and objectives.

Stability in the space domain is inherently linked to managing risk to return on investment. Return on investment and growing benefit from space depends upon maintaining a stable and safe operating environment. For the long-term success of investment in the space sector, it is important that investors consider responsible use of the domain as part of their overall assessment of an investment opportunity. Responsible use of the domain drives stability and predictability, and reduces risk in a number of ways. It increases safety and operational consistency in the domain. Instilling responsible design and operations practices early in the lifecycle of space investment can contribute to reduced costs of operations. It can help to drive regulatory stability and consistency while contributing to common business norms across jurisdictions in support of fair market competition.  Adherence to common stewardship practices in space-sector investing based on the principles of responsible investing will support these outcomes.

A Stewardship Approach to Investing Responsibly in the Space Domain

Investors are part of an overall ecosystem of actors that can influence and help to instill responsible operations practices in the space sector. By adopting a stewardship approach,  space investors can support both performance of specific investments as well as conditions of stability in the operating domain supportive of long-term growth.  This entails  operating space systems considering not only commercial and/or mission objectives and service quality, but also their impact on the orbital environment and on other commercial operators and users of the space environment.

There are actions investors themselves can take in support of broader stewardship approaches to the space domain. Encouraging the development of responsible space activities can itself create new investment and market opportunities. These include direct investment potential in new and novel services that may be created in support of space sustainability, such as: space situational awareness services, debris remediation, satellite servicing, post-mission disposal, active debris removal, etc. It can also help create sustained downstream investment in the markets and services that are partially or fully enabled by space applications and technology.  

To support such an approach, Secure World Foundation has issued a new publication titled Responsible Investment in the Space Sector: A Guide to Stewardship for Sustainable Value Creation.     The aim of the Guide is to help investors new to the space domain to be aware of, consider, and take action to mitigate risks to mission success and business continuity, as well as to reduce the risk of potential harm to the environment from mission failure.  The Guide includes a checklist that provides a list of elements to guide the development of space companies that are mindful of the importance of responsible and sustainable space operations, that is, companies that operate space systems considering not only commercial and/or mission objectives and service quality, but also their impact on the orbital environment and on other operators through voluntary compliance with better-than-required behaviors. 

Conclusion

As the space economy expands, practices for sustainable and responsible space operations will be necessary for ensuring profitability and long-term growth. To date, most analyses of the economic opportunities in the space sector  have addressed the financial sustainability of commercial space activities while overlooking the importance of responsible behaviors in space to ensure the sustainability of those activities from an environmental perspective. Given the unique physical and operational aspects of the space domain, the diversity of regulatory regimes under which space companies must operate, and the proliferation of opportunities for access to capital, a sustainable space economy can be enabled through attention to promoting and adhering to  responsible behavior. Space investors have a key role to play in achieving this outcome.

There are consequences to investors not encouraging responsible behavior in space activities; decisions that we make now might limit future investment opportunities and returns. In an increasingly complex and congested domain, failure to limit debris creation and to develop effective practices for coordination of space traffic will lead to increased collision risk and increased potential for harmful interference, which would in turn impose increased costs on operations, making business cases and returns more difficult to achieve. Failure to operate in responsible ways may also lead to regulatory reactions that might limit business growth or impose additional costs.

In Responsible Investment in the Space Sector: A Guide to Stewardship for Sustainable Value Creation, we have made the argument that the long-term financial sustainability and profitability of commercial ventures in space depends on all space actors behaving in a responsible and sustainable fashion that does not harm the space environment, and that investors have an important role to play in shaping the behaviors of commercial space actors towards responsible operations practices. 

For questions or more information related to this publication, please contact Senior Director, Private Sector Programs Ian Christensen.