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Natural Environment

The businesses case for implementing a natural capital strategy

An expert panel discussed the business case for implementing a natural capital ecosystems approach into business strategy and planning processes as a part of a series of World Built Environment Forum webinars.

Sian Morgan, Land Journal Editor, & Steven Matz, Global Research Assistant
7 May 2019

Humanity is currently using nature's resources 1.7 times faster than our planet's ecosystems can regenerate, according to the Global Footprint Network. An excellent example of the impact of resource scarcity can be found in the National Capital Coalition report (2013) that claims that a water shortage would have a catastrophic impact on 40 per cent of Fortune 100 companies.

All businesses depend on ecosystem services in some way. For example, leading companies are beginning to understand that fresh water is critical for most, if not all, major industrial processes.

There is increasing evidence that ongoing ecosystems degradation has a material impact on companies, undermining profits, licence to operate and access to new markets.

However, new opportunities are emerging that are linked to restoring and managing ecosystems. The WBCSD's (World Business Council for Sustainable Development) Vision 2050 project estimates that global business opportunities in natural resources may be in the order of US$2-6 trillion per annum.

Communities, NGOs, customers, consumers and shareholders are becoming increasingly conscious of the interrelationship between business operations and the state of ecosystems and they are demanding that these issues are reported and accounted for.

This is important to business because in many parts of the world, regulation and legal requirements for companies to minimise and mitigate their ecosystem impact and to compensate for damage caused are becoming stricter.

The business case for implementing a natural capital strategy

The focus of this webinar is on the business case for implementing a natural capital and ecosystems approach into formal businses strategy and planning processes. This will ensure the interdependency between the natural capital asset base and the ecosystem services it provides and the long-term sustainability of the business is understood by both businesses and investors alike.

Importance of natural capital

Dr Mark Everard, Associate Professor of Ecosystem Services, University of the West of England, explains natural capital like this: 'We all have bank accounts; we know that if we have nothing in the bank we can't withdraw money and spend it. And the natural capital argument is very much the same. If we want the services of nature, then we have to ensure that we have money in the bank, that is, natural capital.'

However, Véronique Dham, Founder of BIODIV'CORP, biodiversity consultant, and Anil Singh Rana FRICS, Founder of CPD Ltd in Mauritius point out that few companies are using natural or environmental accounting, it's still a very new concept. Except for big corporates, most companies are unaware that they rely on nature and focus on their impact and on ways to reduce their carbon footprint.

So the big challenge for organisations is awareness of their dependency on nature, and to track, evaluate and put a value on these dependencies.

The water companies and drinks companies who realise they are water limited, are leading the way on natural capital. Others, such as the Forest Stewardship Council, are doing great work, as it recognises that forest products come from a finite source.

But for too many businesses there is a still a sense that protecting the natural world is an act of altruism, rather than symbiosis and complete dependence. In fact they should look at it as risk management pure and simple. It's risk in terms of security of supply, reputation, and liabilities.

Mark says what needs to change is this mindset of boundlessness. We can no longer carry on depleting one resource then going to another country or using a different material or mining a different ecosystem – that model is broken. Businesses that have run into this brick wall in the past, such as the drinks industries, forest product industries and marine product industries have now taken the lead. They understand the need because they have run up against the finite limits of the ecosystems that their bottom financial line rests upon.

Business perspective

Véronique believes that it can be hard for businesses to understand how they depend on nature. She thinks that we need more economists involved in natural capital. Businesses need help accessing the facts. 'It's hard for business people to access and understand science, the language and the methodology.' To raise awareness we need practical tools that business can use, along with metrics, so that businesses see the advantages of doing it. There are a number of different tools that companies can use to account for natural dependencies and liabilities. Initially it's not necessarily about putting a number on natural capital, but making companies aware of their dependency on nature and helping them understand their biodiversity footprint, so that they can have a sustainability strategy. 'There are tools to help businesses understand that without this raw material, or if there is an additional tax, or a new law, maybe tomorrow they won't be able to sell their products.' Those tools include: ESR (Corporate Ecosystem Services Review) and CEV (The Corporate Ecosystem Valuation).

Five years ago, for example, L'Oréal carried out an assessment of all the plants that it used in its cosmetic products and highlighted those that were at risk of disappearing. It found that 40 per cent of the money from the sales of its products relied on biodiversity.

Catch up - Energy efficient renovation

Just another commodity?

Mark says that when looking at dependency on ecosystems, businesses need to have a systemic frame of mind, not just to choose the bits that are easy to manage, but to focus on the whole. There are a lot of management frameworks out there, including the triple bottom line: economy, ecology and society, the ecosystems service framework, five capitals model, STEEP (social, technological, ecological, economic, political) and the natural step. No matter which model businesses use, they need to think in a system sort of way. And above all, they should not cherry pick the bits of the system that they like, but think about the ramifications of their choices. The technology they choose has a positive or negative environmental impact and a positive or negative social impact. The policy environment, the economic environment; all these choices steer us in a particular way that has ramifications across the system.

One of the problems with the regulatory legacy and the way that government departments and legislation is framed, Mark commented, is that it generally focuses on one bit here, or one bit there: an air quality issue, a loss of species etc., rather than looking at the big picture. So, if we're to make serious headway as a society, the regulatory model really needs to evolve massively, he says. We need to look at things in a connected way. But the first thing businesses can do is to make sure that whatever conceptual framework they use is really joined up. And they must keep in mind that they will make little traction without that conceptual framework.

Business growth and environmental protection

In discussing business growth, Mark says 'There is growth and there's sustainable growth. Laggards can undercut responsible people. Changing the regulation and legislation that acknowledges the values of nature is fundamental. We, individually and as businesses, buy to price for the most part, but distribution costs need to be factored in. Ecosystems are absolutely not about valuing nature but about valuing what nature does.' Governments need to be led to create a level playing field.

However, with regard to the construction industry, which works on slim profit margins Anil says that there are particular issues for developing countries and Mauritius. 'Natural capital in construction is not a priority, there is little awareness. We are in a 'more for less era'. The challenge is how to allow for natural capital costs when this is the culture. Where do developing countries get these financial resources from? We need experts to advise us.'