Valuing Nature

Monday, April 13, 2015

18:00 - 21:15

Placing a value on social and environmental impacts is seen by many as the ultimate solution in delivering a sustainable economy. And there is no doubt that the “natural capital” movement is gaining momentum. The number of global companies engaged in natural capital initiatives has reportedly grown 85%, to over 300 in the past year, and the FT has written about the “mini revolution” it is creating in the accountancy profession.
But it is not without controversy. Those who equate putting a “value” on nature with “pricing” nature argue it turns nature into a commodity that will be at the mercy of market failures. Some feel a lack of agreement on methodology is undermining the credibility with CFOs. Others are concerned at the duplication of work resulting from a proliferation of coalitions working on solutions.

On April 13th we shone a spotlight on this emerging thinking, and sought to identify the end game. We co-produced this event with Mark Gough, the Executive Director of the Natural Capital Coalition, with Axel Threlfall moderating a panel of diverse perspectives.

  • Liz Barber, CFO of Yorkshire Water

  • Inder Poonaji, Head of Sustainability, Nestle UK 

  • Alison Nimmo, CEO of The Crown Estate.

  • Richard Mattison, CEO of Trucost

  • Moderated by Axel Threlfall, Editor at Large, Reuters

Our panellists were given a portrait of a tree before the event, and were asked to look at how they value that tree. Following the panel discussion we had a variety of roundtables related to the theme.


Alison Nimmo CBE The Crown Estate

See bio

Axel Threlfall Reuters

See bio

Dr Richard Mattison Trucost Plc

See bio

Inder Poonaji Nestle UK

See bio

Liz Barber Kelda Group (owners of Yorksh...

See bio
Round Tables

Natural Capital: the end game

With a proliferation of activity around natural capital, it can be hard to see the end game. This table will seek to do just that. Should we expect a unifying methodology for measuring natural capital? Are we inevitably heading toward a time where we have robust conversion prices, and where nature has a financial value? Will social capital follow suit? Bring a hard hat!

Write UP

Table 1(a)
• All participants agreed that natural capital considerations were increasingly affecting their organisations.
• Participants expressed the need for a simple way of measuring and quantifying natural capital.
• However it was acknowledged that there are significant challenges in creating an overarching framework to account for natural capital, given the complexities of measuring constituents of natural capital such as biodiversity and ecosystems.
• Frameworks for measuring natural capital are constantly evolving and improving, as is the case with financial accounting frameworks.

Are we inevitably heading toward a time where we have robust conversion prices, and where nature has a financial value?
• There was no consensus on whether it would be possible to put a set financial value on natural capital.
• Natural capital has different value to different groups, so it is extremely difficult to place a price on it.

Biodiversity offsetting schemes
• Biodiversity offsetting schemes were suggested as a mechanism for internalising some of the negative externalities of business on nature.
• Biodiversity offsetting has the potential to deliver biodiversity benefits to compensate for significant biodiversity losses that occur as a result of development projects.
• However, it was acknowledged that biodiversity offsetting has various limitations. Importantly, offsetting schemes are difficult to implement in the absence of a methodology for measuring and valuing biodiversity.
• There were also concerns that if biodiversity offsetting schemes are only implemented on a voluntary basis, they would not have a significant impact, as it is likely that only larger forward-thinking firms would participate.
• It was also suggested that companies in the north might have more of an incentive to conserving natural capital than companies in the south.
• However, if several large companies work together, they might be able o change the market.

Challenges ahead
• There is a basic lack of education and understanding of our dependency of nature.
• For example, the Kingfisher bee campaign exposed a lack of understanding about the role of bees in maintaining biodiversity and delivering ecosystem services.
• Children should be taught about nature in schools.
• By 2020, 70 per cent of the world’s population will be living in cities, increasing the importance of education about nature’s vital role in providing ecosystem services.

Conclusions – the end game
• Accounting for natural capital with be a system of trade offs.
• There is no ‘one size fits all’ solution as each organisation faces different issues.
• Data is increasingly important in informing decision-making.
• A big education drive is needed so that people know why natural capital is so important.

Table 1(b)
- Materiality and Risk
• How CEO’s are brought on board with the importance of Natural Capital and valuing nature.
• Claire Esbenshade comes from a mining background where the availability of water is paramount for the functioning of a mine. No water= high cost = no production, so they must take this fact when choosing a location of a mine.
• They must also into consideration the social effect which means if the mine effects the water supply to the locals this affects the availability of labour and may lead to social unrest.
• These factors need to be taken into consideration for the long term so companies don’t just nip in for the short term & nip back out again leaving destruction 15 years in the future. Which is damaging to the company’s reputation which then has a knock on effect on share prices. This is where risk appetite comes in.
• CEO’s understand better shadow prices as they are more definable.
• Natural Capital needs to be able to show there is no long term credit risk to the company.
• Natural capital needs to be interlinked with social capital, knock on effect.
• Costs where supply is in abundance will be lower than where supply is scarce, sourcing supplies from elsewhere raises costs. Location where natural capital is in good supply is a major consideration as leads to major savings.
• Extinction cost needs to be factored in. E.g. the effect on agriculture if the bee becomes extinct? Do we build robot bees? What would be the cost of their production compared to stopping the bee becoming extinct in the first place?
• There is a need to pass on the value they have in Japan which is the importance of what we leave to the next generation.

- Methodology vs Regulatory framework
• Should/can we have a one size fits all voluntary regulatory framework.
• Who decides what is material and who can produce a framework without bias? As across different sectors & companies there are so many factors of importance.
• The framework then needs to be flexible, which then can effect comparability.
• The terminology needs defining whether it is measured in financial or monetary terms which aren’t interchangeable.
• Should the framework be regulated by the government or by industry? There are already a lot of government regulations set up in different countries which get ignored due to corruption. Should they be made to be mandatory?

- Data
• How & what data do we collect?
• How reliable & comparable is the data?
• Does it matter that the data is not perfect?
• Collection is a time suck how can it be made simpler?
• Should there be a google app invented to deal with real time big data?
• Can they come up with a water risk analyser?
• Data is more effective to show to CEO’s and laymen in picture format, one picture paints 1000 words.
• China has a real time data which is accessible publically to help with improvement of air quality etc.
• Will the availability of the data put a company out of business? Will companies actually want to conform?

To sum up it is a major breakthrough that Natural Capital & Green Bonds are on the table & industries are realising the importance of Natural Capital and the effect it has on their Profit & Loss. Companies who recognise the Natural Capital risk make savings both in financial & monetary terms. It will be interesting how the valuation of Natural Capital progresses. Will it benefit nature or will it go the way of Ben Elton’s Gasping?

Where’s the ROI from intangible benefits: stories or numbers?

How are companies evaluating and communicating the hard-to-measure benefits of their sustainability investments, such as brand reputation and employee attraction/retention? Do complex financial measures help, or should we focus on compelling story-telling and communications to demonstrate return on investment?

Measuring social value

Most companies measure the inputs for social programmes, such as donations to charity and volunteering. Few measure the impacts on their business and society, and fewer still can quantify the business case. This table asks if the ability to define a business case is critical to the evolution of social sustainability. Which initiatives does the table admire?

Write UP

1. What are the characteristics of a good business case for sustainability?
• Global framework, that can be delivered locally and reflects materiality
• Employee involvement through volunteering can be a powerful way to gauge company morale
• Identifying where you can make the biggest impact and developing programmes that can deliver it – while leaving room for projects that are driven by passion and inspire employee volunteering and engagement
• Understanding what stakeholders actually need – which isn’t always what is assumed. Internal business case is important, but the system approach is important
2. Do people have examples of how they’ve managed to attribute their initiatives to wider improvements in the system?
• Social impacts could be seen in a broader, strategic, social sense
• Awareness of mega trends and how companies can help address them can bring change.
• Needs vary country to country
• Vision of the “long game” – investments now can reap longer term rewards ex. employee health and wellbeing

• There is no clear cut way to “measure” the impacts of social programmes, but there is a need for methodologies that can – to develop the most effective initiatives, build internal buy-in, engage external audiences – and benefit the business.
• There is a lot this group can learn from each other – so keep in touch!

When do shadow prices become valuable for decision-making?

There is a large variation in “conversion ratios” that translate social and environmental impacts into financial values. A recent CDP report found that corporate shadow prices for carbon range from $6 to $80/metric tonne. This table will discuss the link between price and decision-making, and ask whether today’s ratios are already good enough to influence core business decisions.

Write UP

Looking at shadow prices more holistically undermines creditability.
e.g.: Shadow Price for carbon a day at BP are approximately £10-20 a day according to BP research hence it makes sense to regulate shadow prices in the market whereas for cooperates such as Sainsbury regulation on carbon prices wouldn’t make sense. In reality smaller businesses are more interested in the moral side of the businesses.
• The shadow prices of the world in reality and in present need to change for a wider understanding. One of the challenges of natural capital is that regulations in general are not ready; data for example is non existent.
• Issues with qualifying risks: when water risk is converted to shadow prices and presented to senior executives it poses assumptions. E.g. Portfolio of power stations is not allowed to operate due to water scarcity. So evaluating if assets require water is important.
• Shadow prices will not become valuable in the near future: It is challenging to create international regulations as shadow prices are defined differently either in a broader sense (e.g.: social impacts on climate change) or narrow sense (e.g. monetary/ economic impact in business.
• Strategies around shadow prices have to be implemented and will take time. Who will take the lead with regards to shadow prices is questionable.

Red Flags:
• Minimizing water use verses minimizing cost of production:
• The global attitude within emerging markets for shadow prices in decision making is questionable i.e. ‘why bother investing in local economy if someone else will do it for us?!’

• Make away from shadow prices and consider risk assessment and regulatory costs instead.
• Shadow prices will only become valuable when people stop using the word itself. They communication needs to move away from business terminologies and speak in a language understood by people on all levels of the business hierarchy.
• Looking at shadow prices in isolation doesn’t give us anything valuable in terms of business decision making. Helps to minimize environmental risks rather than financial risks. There is a conflict in the economic sense regarding what we want shadow prices to do. We need to focus on symptoms and root causes beyond local management….we need to look at it holistically.

What’s the value of a tree?

This table will pool its thinking on how to look at the environmental and social value of an English oak tree on the outskirts of a small village. Before the event, we will share a document explaining the characteristics of this hypothetical tree, and the table will discuss the different approaches to putting a value on it. Is there a list of things that you are in broad agreement on?

Write UP

Example projects:
• Local authority whose requirement to cut budget for trees was reversed when the calculated maintenance cost turned out to be significantly less than the value created by these trees
• Bioregional’s project for B&Q to bring woodlands back into management, part of which is looking to demonstrate the economic value of forest & measuring the extra value that is being delivered, including things like carbon capture, number of visits to woodlands by school children, recreation. B&Q’s interest in valuation goes beyond this into areas such as choosing between alternative materials, similar to how PUMA’s EP&L was able to inform the selection of leather vs alternatives
Aspects of a tree’s value that should be included in a value assessment:
• The value of a tree depends on who is asking the question: for example pure economist vs child vs member of the local community, and these elements are not always reconcilable because they lead to different outcomes. Then we may look at all perspectives: which perspective wins? The one with the highest value, power or most righteous?
• Location matters: Protected forests/trees are not necessarily always the most valuable for example if located next to future road they will be more valuable. Type of tree also matters for example if it can be used for medicinal purposes
• We may also need to direct efforts towards aspects more difficult to value, such as cultural value. It is “easy” to agree on measurable services that the tree provides: we could agree on a carbon price, for example. Then we go into difficult waters such as cultural valuation involving history etc. which is emotive and difficult to calculate. At the same time this cultural value doesn’t exist for trees located in deep forests which still provide the carbon service, so there is an argument both ways.
Other considerations:
• Care needs to be taken with regards to business power dynamic being imposed on traditional realm of ecology. We could lose all sense of value by moving to quantification, it is a risk that needs to be assessed.
• Similarities and differences between the Natural Capital Protocol (NCP) and GHG Protocol: The GHG Protocol provides calculated factors which also change every year in line with scientific and other assessment changes. The NCP, it doesn’t look like it will be providing hard numbers/formulas/science. You could argue that someone needs to take a stab and start calculating the hard numbers. However, the NCP is designed to set the scene for hard numbers, by providing a yardstick to be able to judge methodologies, steer into a single direction and create a common vocabulary For example, one may argue that we haven’t yet agreed on a methodology for carbon valuation so how can we think of moving beyond carbon? Again, this is where the NCP comes in.
• Will it always be the case that everyone valued their trees in their own way, similar to the way businesses take individual decisions? Maybe, but then you also need to get to a stage where you can benchmark to compare projects, sites etc. You need sufficient similarity. However many businesses do this on site by site basis because the context is different. Availability of water in Ireland less material than in Sao Paulo
• We are all enthralled to GDP: if we can get agreement that economics isn’t working as it is then this can help steer the debate further. For example, is fiduciary responsibility to clients defined as pure maximisation of financial returns or delivering a return in a world where they are able to enjoy their savings?
• How much non-financial information are investors interested in? Clients have varied interest: some demand quarterly/annual reports and some have no interest. The stranded assets debate was a big push but people still don’t see it as investment relevant, they just see it as a box ticking exercise, they know someone in the team is needed to respond to requirements but the business case is still being built
• Basic carbon and other measurable ecosystem services should be included but also other more abstract services such as cultural services
• Valuation has to be very context specific and taking into account the context changes over time e.g. if this forest is the last available place to build a hospital then the social capital benefits may outweigh natural capital. It also depends on the time horizon of the valuation and of the decision that needs to be made and the context of that decision.
• Important to note that value may not be recognisable until it’s gone (loss value)
• For Puma it was interesting to conduct an EP&L relating to their own supply chain – but for a company that wants to construct somewhere and needs to clear a forest, the value to the village is not internalised for them and may not be sufficient business case.
• A valuation based on a single point in time in a place - one can come up with a number but it will be very subjective. To get into the realm of looking at it from a corporate perspective one must have to do it on an annual basis as a continuously evolving number, getting into the realm of big data management

Finding a standardised approach

One of the criticisms of using natural and social capital valuations as a decision-making tool is the lack of agreement on methodology. The Natural Capital Coalition has been established to deliver a standardised approach, and its Executive Director, Mark Gough, will lead a discussion of the approaches as the table identifies the key elements for success.

Write UP

Mark Gough began the discussion by introducing the NCC and the Protocol, highlighting the collaboration required to produce such a framework. Many participants had questions regarding the Protocol. It was explained how the Protocol signposts users to the most suitable methodology and does not create any news methodologies.

Discussion was opened us regarding where standardized approaches should be directed toward. The table debated the necessary involvement from governments vs corporations. It was generally agreed that governments can replicate and feedback into corporate tools such as the NCP.
Obstacles and Challenges:
• The table presented differing opinions regarding a sector or national approach for natural capital valuation. This related to the valuation of common goods. There was a feeling that common goods could be overlooked by employing a sector approach.
• A challenge was identified in capturing the cumulative impacts of small companies and more resource-light sectors, including media.
• Scientific credibility of the methodologies was brought up as an important factor; the idea that though many companies may reach a consensus it doesn’t mean it’s the right consensus.
• It was agreed that there is a need for accompanying policy in natural capital valuation.
• An argument from the earlier panel discussion was reiterated, concerning the ethics of valuing nature. It was agreed that ethical guidelines are needed to accompany otherwise quantitative methodologies.
Solutions and Opportunities:
• A sector approach has much clearer drivers and is better for engaging business.
• There is an increasing opening of dialogue on natural capital valuation, which is leading to change.
• A global approach (methodologies that are geographically inclusive) is essential for the success of a standardized process.

How can business support the natural capital movement?

As in any early stage movement, there is a proliferation of initiatives working on a solution – The Natural Capital Coalition, A4S and the Natural Capital Leaders Platform are examples. Given limited bandwidth, how should companies decide which initiatives are best suited to them? Which initiatives does the table admire, and what needs to happen for the movement to flourish?

Write UP

Discussion Notes
• The notion of Natural Capital is on the rise and the different perspectives will aid in spreading it.
• There will be no significant or immediate change towards natural capital, however discussing carbon is now main stream but was not ten years ago, and therefore perhaps we are ten years away from main stream discussions around natural capital.
• ‘Silent Spring’ by Rachel Carson 1962 is a precursor to this discussion.
• Companies vary, some are involved, others are exploring natural capital and others do not see a link between their practices and natural capital.
• Using natural capital is changing the decision making dynamic.

• The term ‘natural capital’ is lost on many people.
• There is a need to relate to people, not just through sentiment but also through financial terminology.
• There needs to be a connection made between services and organisations with natural capital in common, such as water services and agriculture.

Red Flags (Warnings)
• Those who are getting involved are accused of doing so for reputational reasons.
• Nature has intrinsic value but calculating costs becomes very complicated.
• Businesses are not looking for the long story or big picture in terms of nature.
• Long supply chains become complicated and natural value is lost.
• Information and data is increasingly available but some industries (construction was mentioned) are not ready to receive or use it, and cannot at present see why they should.
• Top management on the continuant/overseas has yet to establish a vocabulary for carbon costing, natural capital will take longer to define.

• Changing the language/terminology may help make it more relatable and highlight the value, especially for businesses.
• Companies who work closely/directly with natural capital, such as in agriculture, understand natural capital intrinsically, other business begin to use it in matching/comparing performance to such companies.
• Those new to the sector or coming out of education will have internalised concepts around natural capital, whereas others have to adapt.
• Providing tool kits is necessary, waiting for government intervention/regulations is too slow a process.
• Sector collaboration and communication on shared natural capital is vital and benefits all involved.
• Natural capital makes businesses start realising they are part of a wider system that effects everyone.
• Early stage companies could drive the concept of natural capital from the get go.

• Imperial Tobacco shows positive natural value using natural capital.
• Carbon Trust type system could/should be created to drive similar results for natural capital.
• Construction industry that needs to cut down trees and who are not experts in growing trees outsource to a tree planting company to offset and ensure the best tree planting practices.
• Tax roof spaces and parking spaces that cause rain water runoff.

How business can help the Paris 2015 negotiations?

With eight months to go before what some call “a last chance for humanity”, this table will look at the practical steps that business can support COP21. This table will be joined by Tamara Inkster-Draper of CISL’s Corporate Leader’s Group, who is working on research on what business can expect from Paris. Is a loud call for a price on carbon the most effective move business can make?

Write UP

Business was under-represented at Lima, with limited seats for Business, Industry and NGOs (BINGO)
The Prince of Wales Corporate Leaders Group (CLG) is composed mostly of big businesses, working towards a low carbon future
The CLG sends out communiques each COP where smaller businesses can lend their voice by signing on. The last one was around limiting emissions to 1 trillion tonnes, next one will come out leading up to Paris

• Events - Business and Climate summit in Paris (May) - informal opportunity to see how to get involved
• Business must make voice heard before the COP, make an economic case, and policymakers will take note
• Don’t wait until the COP - lobby, show support and lobby business to support now
• If 100+ businesses agree, governments recognise unity in the market and smaller coalitions can build up into larger coalitions
• Examples of coalitions: World Bank Carbon Price Coalition - over 1000 businesses have signed up, can sign up for many different levels, We Mean Business
• There are many different specific sessions, which are more discussions than commitments. Can be difficult for businesses to know which to support. Carbon Credentials have a brief overview “How Can Businesses and CEOs Get Involved in International Climate Negotiations?” (pdf)

Carbon Pricing 1: is it a good thing?
• Yes - helps drive good behaviour through putting a value on emissions and making them visible
• Though mustn’t be seen as a tax, must incentivise reductions
• It can bring certainty when planning for future. A sustainable business is a less risky business

Carbon Pricing 2: How much should it be?
• High! (suggestions of $60-80/tCO2)
• Currently large range (orders of magnitude) is a problem as higher price may justify a business case with a CFO although a lower price does not, and it is difficult to justify which price is appropriate
• Gradually ramp up, like the landfill escalator
• For each company, the price must be > cost of additionally, i.e. reduce CO2 emissions to less than cap and trade limits

Carbon Pricing 3: which businesses use carbon pricing?
• Often oil and gas – Exxon Mobil, BP (high price)

What does business want from natural capital policy?

Natural capital depletion represents a material risk to many businesses.  At the same time, much natural capital is controlled by the private sector.  Whose responsibility is it to maintain, manage and invest in natural capital in line with the best interests of society and the economy, and how can an appropriate policy framework be created to achieve this?

Write UP

• Lack of clarity on valuations - Lot of valuations but very little money that changes hands. What does valuation mean?
• Marine Stewardship Council - making very slow progress. The real natural asset being valued is very far away from where is it being used or processed.
• Those in the field such as engineers don't see cement as natural capital.
• People that are manufacturing products are very removed from this movement and can easily switch production methods to avoid disruptions
• Flooding – government agencies had been looking to establish natural capital solutions to flooding in England but a political knee jerk response to the recent floods has meant that project was scrapped and dredging has been undertaken as it was an easier decision politically.
• Lack of data to support decision making
• Some companies a few years back set themselves a BHAG – big hairy audacious goal on natural capital, but now they are struggling to work out how to implement it.
• Hard to get the necessary information i.e. to look at maps which show impacts
• Some have the data needed but the next step of getting the values is a barrier

• Biodiversity offsetting very new and could lead to adverse effects
• Government worried that the environmental damage and natural capital valuation would push the cost of capital projects up even further
• Polluter pays principle is too reactive as you have to wait for someone to pollute

• Communications is important. A method to engage people is to talk about future generations and 'your children's future'
• Would be better if we had policy to guide us before we set off on something
• Easier around energyas the business case is clearer
• PES - works well in the water sector but lack of examples in other sectors

• Stress testing be done on natural capital in particular sectors. Need to do it in particular geographies.
• Need non-market values to make the right policy decisions. Need to identify what the right type of values are for decision making.
• Using geospatial systems to identify impacts.
• Need a forum where people can come together – Valuing Nature Network is an example
• Invest in a PhD student to tell you what to do!
• Business reporting on natural capital can be a driver for change

• How to measure our 'no net loss' goal is challenging. No idea how to meet or measure it. Massive knowledge gap.
• Damage to soil in Britain's flooding is probably one of the biggest impacts of flooding. But the damaged land is valued but the soil is not.

How can data and technology enable natural capital accounting?

The cost of accessing information is one of the barriers faced by companies interested in natural and social capital. This table will look at how technology can change this equation, from internal software that that produces useable data to data platforms such as “The Water Risk Monetiser”. How important is data access to decision-making, and how does it connect with the business case?

Write UP


• Terminology used when introducing the idea of NC;
• Scope of NC, including its effects in time, relevant cases studies (reference was made to the variety of factors to be considered when making a city marathon carbon neutral – e.g. how does one account for runners’ air fares and TV sets watching the race?)
• Methodology;
• Quality of data;
• Ownership of information;
• Responsibility for supporting/enabling accounting;
• Complexity given its impact over years/generations;
• Compliance framework/regulations are perceived as toothless;
• Weakness of business case;
• Reluctance to share accounting mechanisms/knowledge across some industries;
• Large difference between industries, some industries struggle to determine the relevance of NC;
• Risk of technocracy;
• Impact on the public sphere, requirement of transparency;
• Cost (including that generated by frequency of audits);
• Difference between reporting mechanisms used.


• Collecting and providing quantitative information (data) to enable concrete discussion and decision-making surrounding risks and opportunities (reference was made to the A4S 10 Main Steps to Integrated Thinking)
• Supporting and introducing a legal framework (reference was made to the Energy Efficiency Directive)
• Consider most persuasive arguments and audience. Is management to be supplied with detailed ideological and empirical information or is a steamroller approach to be adopted? (Analogy was drawn to the introduction of social media, often as a fait accompli)
• Peer pressure: everyone is doing it and that it is not just a buzzword
• Involve all links of the supply chain (see Sustainable Apparel Coalition, HIGG Index)
• Create working groups and virtual platforms

Venue Detail

Deutsche Bank

1 Great Winchester Street | London | EC2N 2DB

Who's Attending