Conservation International s. resources. & Sustainability Council. Valuing Ecosystems for the Benefit of the Environment and Business

Transcription

1 Conservation International s Business resources & Sustainability Council Valuing Ecosystems for the Benefit of the Environment and Business

2 Just as an individual s wealth is a measure of their income and assets, Conservation International (CI) believes that part of society s assets is its natural resources. While it is easy to understand the value of the natural capital we consume directly such as food and water much of the dividend that society receives from natural capital remains economically invisible. Often overlooked are nature s renewable ecosystem services such as pollination and water purification why do you put a value on what nature provides? And how can it inform better business and development decisions? Introduction Management of natural resources and ecosystems has long been relegated to land use planners and conservation organizations. Corporate valuation of ecosystem services is one of the major emerging trends in the sustainability space and one that companies need to focus on. The question is no longer if ecosystem services will be a key framing of environmental issues among multilateral institutions such as the private sector and governments, but rather exactly when, where and how it will occur. As businesses increasingly recognize the need to address their dependencies and impacts on ecosystems, they should also take natural capital into consideration. The launch of reports such as the Millennium Ecosystem Assessment and The Economics of Ecosystems and Biodiversity (TEEB) are bringing natural capital valuation to the forefront of the corporate sustainability arena. If valued in financial terms, it is estimated that ecosystem services such as freshwater, a stable climate and food security would provide benefits valued at $2-6 trillion per year. Yet, many ecosystem services have largely been disregarded in financial and investment analyses. Markets do not systematically account for the inherent value of services provided by nature, like water filtration or coastal protection. The failure to account for the full economic values of ecosystems has been a significant factor in their continuing degradation and loss. Both economics and ethics demand more systematic attention to the values ecosystem services provide. For CI, the valuation, protection and management of natural capital has become a key aspect of our mission to value and account for nature s role in human well-being. We recognize that with the ever-increasing demands of a soaring population and middle class, nature is losing ground. And with it there is a dangerous downslide in the ecosystem services that we all rely on for our health, security and quality of life. In this, our first publication of Resources, we vet the information on ecosystem services for the business context. By providing a review of the existing resources and tools, we hope to help companies understand the issues surrounding natural capital and ecosystem service valuation. Along the way, we present case studies on how leading companies are using the new approach to change behavior and realize business benefits. Finally, we give you our perspective and present opportunities to further support CI s mission and achieve your environmental and business goals. Natural capital: the limited stock of natural resources left on Earth that we vitally depend on for our prosperity, security, health and cultural traditions. Ecosystem services: the benefits that functioning ecosystems provide to people. These services, many of which are critical for supporting life on Earth, include provision of fresh water, protection from storm surges/flooding, fertile soil and food, clean air, climate regulation and medicines.

3 The Business Case for Valuing Ecosystem Services The Business Case for Valuing Ecosystem Services was the theme of CI s Business & Sustainability Council (BSC) meeting in June 2012 in New York City, hosted by Rabobank International. Member companies and guests spent the day delving in to important questions about why natural capital needs to be accounted for, how it can be done and what benefits it might provide their company. As business prepares for economic expansion, population growth and global climate change have put undue pressures on the management of ecosystem services. Increasingly these degraded and lost services pose operational, regulatory and reputational risks. At CI, we believe that companies that understand the linkages between their business interests and healthy ecosystem services can take advantage of emerging business opportunities, such as new technologies and products that reduce impacts for clients or engage in emerging markets for ecosystem services as well as knowledge of their supply chains from origin to market. One of the ways companies can demonstrate leadership around ecosystem services is through issue spotting figure out what you draw from nature, and what you do that impacts nature. This is fundamental for businesses to develop their eco-advantage and retain their competitive edge. Daniel Esty, co-author of best-selling Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, at the June 2012 BSC meeting Companies today are already recognizing the benefits of managing their impacts and dependencies on ecosystem services. Such an understanding can help effectively target investments in high risk areas (e.g. raw material sourcing) and successfully integrate sustainable production practices (the optimum use of resources to maintain the planet s valuable goods or services) with the growing movement in sustainable consumption.

4 Bunge Limited Bunge Environmental Markets (BEM), a division of agribusiness and food company Bunge, helps companies manage their greenhouse gas emissions and develop emissions reduction projects. Recognizing the private sector s dependency on ecosystem services such as carbon storage, and that these services would not be free or under-valued indefinitely, the company started to actively engage in carbon markets in Even in the absence of a global carbon market, BEM believes countries like Australia and some states within the U.S. will continue to move forward with policies that utilize carbon offsets. Carbon accounting is a growing metric that companies cannot ignore. With over 200 projects and 150 million tons of CO 2 equivalent mandated thus far, the company recently invested in a Brazilian Amazon project that will avoid approximately 30 million metric tons of CO 2 emissions and generate carbon revenue through the preservation and sustainable harvesting of 70,000 hectares of native forest. case studies Putting Ecosystem Service Valuation into Practice CI s annual BSC meeting allowed for a unique forum to explore the business case for what is prompting companies to start measuring and valuing ecosystem services. Companies including Bunge Limited, Puma and Rabobank International lent their insights and experience into how accounting for natural capital has transformed their traditional business models. PPR Home/PUMA PUMA, a leading sportswear company, launched a groundbreaking Environmental Profit and Loss (EP&L) accounting of the company s environmental impacts, valuing them in 2010 at 145 million ($195 million USD). Along with environmental research group TruCost and PricewaterhouseCoopers, PUMA examined its operations and supply chain impacts greenhouse gas emissions, water use, land use, air pollution and waste. The EP&L revealed over half of PUMA s impacts fell within Tier 4 of the supply chain, which includes core product materials such as leather and cotton. Assigning a monetary value to environmental impacts has helped the company better understand both business risks, as well as opportunities to save money and become more effective and efficient. PUMA has already used the information from the EP&L process to drive more responsible and informed business decisions. Rabobank International A leading global food and agribusiness bank, Rabobank International developed a Corporate Social Responsibility (CSR) Policy for Brazil to ensure provision of financial services in line with the company s commitment to sustainability, as well as minimize Rabobank s credit and reputation risks and improve competitiveness. Rabobank Brazil applied the World Resources Institute s Corporate Ecosystem Services Review (ESR) tool to their CSR policy, helping them identify a number of key ecosystem services within the Cerrado biome on which they were highly dependent, including water flow regulation and pollination services. According to the ESR assessment, ecosystem services within the Cerrado were generally all trending in a downward direction, but the company s policy appeared to be robust in helping to screen for risks and identify business opportunities within Brazil, including in the areas of improving water quality and biodiversity and generating carbon credits from reforestation. Rabobank International further demonstrated its leadership around ecosystems by signing on to the National Capital Declaration, a collective call among 30 banks, investors and insurers, as well as 50 countries for the integration of natural capital criteria into financial products and services for the 21 st century. New York City Department of Environmental Protection, Bureau Water Supply Nine million people in New York State, including residents of New York City, rely on water naturally filtered upstream in the Catskill, Delaware and Croton watersheds to provide their drinking water, nearly 1.1 billion gallons per day. These watersheds encompass nearly 2,000 square miles of rural, mountainous and forested lands that serve important agricultural purposes. By paying to protect upstream water quality for approximately US $1.5 billion, the New York City Department of Environmental Protection Bureau of Water Supply avoided building a comparatively expensive water treatment facility, which could cost up to US$ 10 billion.

5 Resources and Tools for Ecosystem Services Valuation TEEB The Economics of Ecosystems and Biodiversity The last few years have seen a rapid growth in concepts and approaches on the topic of ecosystem services, many aimed at corporate action. The impetus of this has come from an innovative study called The Economics of Ecosystems and Biodiversity (TEEB). Spearheaded by CI Board Member and TEEB Study Leader Pavan Sukhdev, the TEEB reports reviewed current knowledge and practices around ecosystem services issues at the global level, drawing on hundreds of contributors from companies, NGOs, government and academia. CI experts and partners with deep experience in business, science and policy contributed to this effort. One report in the series, TEEB for Business, offers an important lens through which businesses can understand how their actions might contribute to greater understanding and management of ecosystems services in ways that can benefit the bottom line and the environment. It estimates that sustainability-related global business opportunities in natural resources (including energy, forestry, food and agriculture, water and metals) may be in the range of US$ 2-6 trillion by 2050 (in 2008 prices). If accurate, these projections suggest that the private sector will play an increasingly important role in natural resource management. While many of these concepts or recommendations are not new, the TEEB framework does create an opportunity to highlight where some new areas of growth for corporate excellence may exist. TEEB for Business offers a set of seven key actions business can take today to demonstrate corporate leadership around ecosystems. 1. Identify the impacts and dependencies of your business on biodiversity and ecosystem services (BES); 2. Assess the business risks and opportunities associated with these impacts and dependencies; 3. Develop BES information systems, set SMART (Specific, Measureable, Attainable, Realistic, Timebound) targets, measure and value performance, and report your results; 4. Take action to avoid, minimize and mitigate BES risks, including in-kind compensation ( offsets ) where appropriate; 5. Grasp emerging BES business opportunities, such as cost-efficiencies, new products and new markets; 6. Integrate business strategy and actions on BES with wider corporate social responsibility initiatives; 7. Engage with business peers and stakeholders in government, NGOs and civil society to improve BES guidance and policy.

6 Coinciding with the publication of the TEEB report, there has also been an emergence of tools to assist users (government agencies, land use planners, conservation organizations and the private sector) in understanding their impacts and dependencies on ecosystem services. A study conducted by CI s Center for Environmental Leadership in Business found that there are currently over 26 of these types of tools in development; two that are specifically geared to business are worth mentioning. The World Resources Institute s Ecosystem Services Review The World Resources Institute s Corporate ESR provides a five-step process to scope, identify and prioritize business risks and opportunities that might arise due to trends in ecosystem services and design strategies. Many companies have seen benefits to conducting such reviews. Mondi PLC, Europe s largest pulp and paper company, conducted an ESR on three of their plantations in South Africa. The ESR highlighted ways Mondi could secure its water supplies by using water efficient tree species, clearing invasive vegetation and restoring nearby wetlands. Through the process, Mondi also found an opportunity to engage in the market for biomass as feedstock for power generation from cleared invasive vegetation. The agri-business giant Syngenta also conducted a downstream ESR on small farmers in South India a growing market for their company which revealed surprising information about the company s notable impact on pollination. The crops grown by farmers require pollination, but farmers were converting pollinator habitats in the region to farmland. In one South Indian state, up to 90% of pollinators vanished in the 1990s and the impacts of that loss were still lingering. Applying the ESR allowed Syngenta to prioritize its strategy to increase pollinators in the region through selling natural seed mixes, selling bees or offering assistance through extension services. They also started to engage their foundation and research institutions to support the gathering of global data on ecosystem services so they could assess the impacts and dependencies in other parts of their business. The Guide to Corporate Ecosystems Valuation The Guide to Corporate Ecosystem Valuation (CEV) offers managers a process to make better-informed business decisions by explicitly valuing both the costs of ecosystem degradation and the benefits received from ecosystem services. Rio Tinto used the CEV Guide to look at the monetary cost and benefit of conserving a 60,000 hectare lowland rainforest in the Asony region of southern Madagascar. The analysis looked at the value provided by three major types of ecosystem services: wildlife habitat, hydrological regulation and carbon storage. The study found that there were significant net economic benefits associated with conservation about US $17.3 million net of all costs. The analysis also showed that the costs of conservation are borne locally as the opportunity cost of local communities giving up access to the land. When constructing a strategy, the company realized they needed to construct a financial mechanism to support local communities by transferring resources from those who benefit from conservation to those who bear the costs. Ecosystem services tools can offer a valuable lens to managing corporate costs, resources and supply. Further road testing for these tools will be critical to improve the methodologies, create standard values of key externalities and establish a framework for scaling successful practices that support economic, societal and environmental objectives.

7 Think Forward According to The Economics of Ecosystems and Biodiversity (TEEB) study, about 60 percent of the Earth s critical natural capital has been degraded in just the past 50 years. Although we may take these freely available services for granted, they offer people a wealth of quantifiable benefits, such as food, fiber, fuel, water purification, climate stabilization, crop pollination and recreation, which would be expensive if even possible to replace. In Brazil, CI and consultancy firm PricewaterhouseCoopers analyzed the impact of this loss on several key industrial sectors. In Brazil alone, the agricultural sector could be negatively impacted by climate change with losses of up to R$ 7.4 billion (USD$ 3.57 billion) in 2020 that could reach R$ 14 billion (USD$ 6.76 billion) by Cosmetic and pharmaceutical sectors could also be impacted in the long term since they utilize these same resources. Valuing, protecting and managing natural capital must be a cornerstone of standard operating procedure for business. By quantifying the value of nature s contributions and the associated costs of using (and losing) them, the will to act becomes embedded in a company s DNA. As the private and public sectors are beginning to see that valuing natural capital is in their long-term, enlightened self-interest, we at CI see our organization s role as one of convener, trusted advisor and influencer for this new way of thinking and approaching conservation. Companies in today s increasingly competitive global marketplace are focusing their efforts on outstanding environmental performance as a business imperative. CI s Business & Sustainability Council remains uniquely positioned to provide its members a unique blend of CI thought leadership and science, practical experience from the field and best practices from CI s corporate partners. Ultimately, we hope integrating the value, restoration and maintenance of renewable natural capital put the pursuit of green and growth on parallel tracks.

8 About Conservation International Our Mission Building upon a strong foundation of science, partnership and field demonstration, CI empowers societies to responsibly and sustainably care for nature, our global biodiversity, for the well-being of humanity. Our Vision We imagine a healthy, prosperous world in which societies are forever committed to caring for and valuing nature, our global biodiversity, for the long-term benefit of people and all life on Earth. About The Center for Environmental Leadership in Business Since CI was established in 1987, we have worked collaboratively with business from small-scale farmer co-ops to the world s largest corporations. CELB focuses its efforts on industries with the greatest impact on ecosystems: food & agriculture, oil & gas, mining, retail & consumer products and the financial services sector. CELB offers a wide range of products and services to our corporate partners to improve their business practices, creating and implementing strategies that combine bold commitments to sustainability with practical solutions that deliver benefits to the bottom line and the environment. CELB also cultivates investment in conservation initiatives, supporting field level conservation and ensuring economic benefits to local communities. CI s scientists and policy experts in climate, agriculture, fresh water, ecosystem finance and marine conservation create our core competency in environmental conservation with a strategic focus on contributing to the maintenance of the healthy ecosystems that support us all. About The Business & Sustainability Council CI established the Business & Sustainability Council (BSC) in 2003 for companies committed to environmental and business leadership. Currently comprised of global leaders including Bunge, Chevron, The Coca-Cola Company, Disney, ExxonMobil, McDonald s, Monsanto, Rabobank International, Shell, Starbucks and Walmart, BSC member companies represent total combined revenues of more than $2.2 trillion and 3.8 million employees. The BSC focuses on convening CI s network of scientists and other issue experts with corporate partners for interactive dialogue on key sustainability issues and further advancement of business and environmental goals. For more information, contact: Jennifer M. Gerholdt Senior Manager, Business & Sustainability Council The Center for Environmental Leadership in Business jgerholdt@conservation.org