Know your ecosystem

“Biodiversity loss and ecosystem degradation are continuing to escalate, thereby putting business at risk, but if managed properly, can be transformed into opportunities,” says Bjorn Stigson, president of the World Business Council for Sustainable Development (WBCSD).

Stigson warned companies they must anticipate that ecosystem valuation will be more consistently incorporated into public policies, regulations and political decisions. And this will put strong demands on businesses to measure and report their actions to conserve, as well as sustainably use and share, the benefits of ecosystems and biodiversity. Such values will be increasingly considered by the finance sector and business-to-business customers as they assess the related risks and opportunities of investments and supply chains.

In response to these challenges WBCSD launched the Guide to Corporate Ecosystem Valuation (CEV) in April 2011. Described as an innovative, first of its kind framework, CEV enables companies to consider actual benefits and value of the ecosystem services they depend upon and impact, giving them new information and insights to include in business planning and financial analysis. It is claimed that this will support improved business decision-making by creating more alignment between the financial, ecological and societal objectives of companies.

“I believe it will become one of WBCSD’s flagship tools,” Stigson says. “I also believe it will help companies proactively respond to the changing expectation of key stakeholders – including communities, regulators, shareholders, NGOs and the media. I encourage all businesses, large and small, to use this guide and integrate ecosystem values in their decision-making.”

A flagship tool

The CEV allows business to account for the full value of ecosystem impacts and inputs. This includes benefits of assets and costs associated with ecosystem loss, which has a more direct link to a business’ core operations, supply chain and financial bottom line.

The ability to factor ecosystem values into business decision-making is becoming an ever-more pressing need because:

• Increasing evidence demonstrates that ongoing ecosystem degradation has a material impact on companies – undermining performance, profits, their licence to operate and access to new markets.

• New opportunities are emerging that are linked in some way to restoring and managing ecosystems. For example, according to WBCSD’s Vision 2050 project, sustainability-related global business opportunities in natural resources may be in the order of US$ 2-6 trillion per annum by 2050.

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

• Meanwhile, in many parts of the world, the regulatory and legal requirements for companies to minimise and mitigate their ecosystem impacts, and to fully compensate any damages caused, are becoming more stringent.

Understanding ecosystem impacts and dependencies is of key importance to companies and, according to WBCSD, CEV offers a value-based lens through which associated environmental, social, economic and financial issues can be quantified, and the complex trade-offs between them compared.

Developed through an 18-month process of close collaboration with businesses and four partner organisations (the Environmental Resources Management, International Union for Conservation of Nature, PricewaterhouseCoopers and the World Resources Institute), the CEV is reported to provide clarity, consistency and guidance in approaches and techniques. It puts into practice a key report released in October 2010 by the G8+5 Environment Ministers. Called the Economics of Ecosystems and Biodiversity, the report urged companies to support sustainable use and management of biodiversity as an integral part of their business plans.

However, as WBCSD points out, businesses cannot manage what they don’t measure, and CEV allows them to value their ecosystem impacts, use and management.

Fourteen WBCSD member companies road-tested the CEV guide and were able to produce key examples of the opportunities and risks associated with ecosystems. These included:

• South African utility Eskom which evaluated the cultural services associated with tourism at a conservation area associated with the Ingula pumped storage scheme.

• Portuguese utility, Energias de Portugal, which assessed financial and societal costs and benefits of maintaining higher water levels in the canals and reservoirs associated with several of its hydropower facilities.

What is in the CEV guide?

The guide is divided into two parts. Part 1 ascertains if you need to undertake a CEV through a set of screening questions, plus it also answers some of the queries businesses might raise. Such as what it covers, how they might benefit from using the process, and what techniques and information are used.

Part 2 focuses on how to conduct a CEV and outlines a five-stage process:

1. Scoping: This stage helps companies identify specific business goals and an appropriate analytical context for CEV. This stage also facilitates the preparation of terms of reference for ecosystem valuation and helps build a strong internal case for any CEV project to be undertaken.

2. Planning: In this stage, the guide explains how to elaborate a plan for the implementation of ecosystem valuation. This includes determining the internal and external resources required to conduct a CEV and developing a suitable timeline.

3. Valuation: The guide identifies nine steps that are typically followed when undertaking ecosystem valuation, and describes each step to help companies conduct such valuations, or assess valuations they have previously commissioned. This stage has been developed in line with a typical Environmental and Social Impact Assessment (ESIA) process. However, CEV can readily link with many other existing company processes and analytical techniques.

4. Application: The guide provides advice on how companies can use and communicate their ecosystem valuation results in order to influence internal and external change.

5. Embedding: In the final stage, the guide gives suggestions on how to embed the CEV approach within existing company processes and procedures which address environmental issues.

WBCSD says that the guide is designed to be accessible to most business people but will require input from an environmental economist. Costs related to carrying out the CEV ranged from US$30,000-100,000 for the road-testers, and involved teams of three to eight people working part time over a year.

Many of the road testers came up with monetary results but this does not mean it is the preferred format of results, as opposed to quantitative or qualitative assessments. Many of the road testers were testing out the methodology and wanted to go through the full valuation. The guide tries to stress that it is not always necessary to carry out a monetary valuation, and it entirely depends on whether this information will be appropriate to help decision-making or not.

Monetary studies are typically more resource intensive, but with the development of benefit transfer approaches, need not be. WBCSD says it is important to make sure it is necessary or likely to improve decision-making by determining monetary values before embarking down that route. It may be that it is best to be selective in terms of what is monetised, as long as the other impacts are identified and noted.

Utilising results

The 14 companies have been using the results from their road test pilots in a number of ways. For example, EDP sees their results as being useful for future renegotiations of mandatory financial securities as required under the EU Environment Liability Directive. The utility is also considering converting the approach and methodology into a training kit for internal use linked to environmental management systems and enhanced stakeholder dialogue.

“Applying the guide will allow EDP to gain a better understanding of risks involved and spotlight new opportunities,” said Antonio Mexia, chief executive officer of EDP.

“Business and ecosystems are inextricably linked,” says James Griffiths, managing director for ecosystems, water and sustainable forest products industry at WBCSD. “Simply put, companies that don’t know their ecosystem impact place their businesses at greater risk and miss out on potential opportunities.

“Valuing these impacts and dependencies helps companies make better decisions. In addition CEV allows business to become a bigger part of the solution to biodiversity loss and ecosystem degradation,” he adds, “rather than just part of the problem.”

The World Business Council for Sustainable Development is a global coalition of more than 200 companies from 35 countries, representing 20 major industrial sectors. Its mission is to be a catalyst for innovation and sustainable growth in a world where resources are increasingly limited. The council provides a platform for companies to share experiences and best practices on sustainable development issues and benefits from a network of 60 national and regional business councils and partner organisations, a majority of which are based in developing countries.

For more information see The Guide to Corporate Ecosystem Valuation: A framework for improving corporate decision-making at www.wbcsd.org