The Coalition’s Natural Capital at Risk report estimates the environmental externalities of business are costing the global economy an estimated US$7 trillion, which equates to 13% of global economic output in 2009. The value of the Top 100 externalities is estimated at US$4.7 trillion. The majority of environmental externality costs are from greenhouse gas emissions (38%) followed by water use (25%), land use (24%), air pollution (7%), land and water pollution (5%) and waste (1%).
These are daunting statistics, but it is going to take more than these figures to influence and see a shift in corporate behaviour to preserve and enhance rather than deplete our natural and social capital. What does this mean for business? Just as with nature itself, those businesses that fail to adapt in a world of increasingly scarce resources will lose competitiveness as these resources’ value is realised through tighter regulation, consumer choice and limited supply. For businesses to be viable in the long term the ecosystems and resources they depend on must be maintained, yet when it comes to the natural environment we are undoubtedly seeing a rapid depletion of capital. Businesses rely on ecosystems that provide critical provisioning services, such as food and water, and regulatory services including climate regulation, water purification and flood management. However, 60% of the world’s ecosystem services have been degraded over the past 50 years.
Through natural capital valuation and accounting, environmental externalities can be taken into consideration to contribute towards a greater understanding of future risks and opportunities. With this information, more strategic responses to changing economic, environmental and social conditions, and linkages between strategic direction, financial performance and sustainability impacts can be made, therefore driving a better and more sustainable return in the future.
A key challenge currently is a lack of standardisation across how to value and account for natural capital so it can be applied in business. At The Crowd Forum on 10 Feb, we will discuss some of the “new metrics” initiatives evolving on natural capital. In the Coalition we have just launched the Natural Capital Protocol project to develop and pilot test the industry norms for valuing natural capital in business decision making to enable better measurement, management, reporting and disclosure. It is anticipated that the resulting Protocol will be the precursor to future standards. Two sector specific supporting guides will also be developed to provide specificity that can simplify a sectors use of natural capital valuation. This will focus on agricultural commodities used in food/beverage sector including beef or soy and also the apparel sector e.g. cotton and leather. Future projects could build on this to develop additional sector guides.
The process will be open and consultative to enable key stakeholders from business, policy and practitioners to inform the result and pilot test it. We have an open invitation for business and financial institutions to participate simply by giving a small amount of time in kind. For more information and to sign up to participate see Natural Capital Protocol.