Environmental Valuation & Cost-Benefit News

Forward:
Global warming may dominate headlines today. Ecosystem degradation will do so tomorrow. The Millennium Ecosystem Assessment— the first global audit of the world’s forests, wetlands, and other ecosystems—found that ecosystems have declined more rapidly and extensively over the past 50 years than at any other comparable time in human history. Left unchecked, this degradation jeopardizes not just the world’s biodiversity, but also its businesses. This is because companies depend on the services healthy ecosystems provide such as freshwater, wood, genetic resources, pollination, climate regulation, and natural hazard protection.

This publication provides corporate managers with a proactive approach to making the connection between ecosystem change and their business goals. It introduces the Corporate Ecosystem Services Review—a structured methodology to help businesses develop strategies for managing risks and opportunities arising from their dependence and impact on ecosystems. It is a tool for corporate strategy development and can augment existing environmental management systems.
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Three organizations contributed complementary skills to create the Ecosystem Services Review: The World Resources Institute..., Five member companies of the World Business Council for Sustainable Development—Akzo Nobel, BC Hydro, Mondi, Rio Tinto, and Syngenta ... and The Meridian Institute....

Global climate change and the demands of a growing population are likely to further degrade ecosystems in coming years, increasingly challenging business assumptions and practices. The Ecosystem Services Review offers a promising approach for companies to manage the risks and opportunities that will emerge and, at the same time, to become better stewards of the environment....
Jonathan Lash, President World Resources Institute
Björn Stigson, President World Business Council for Sustainable Development
John Ehrmann, PhD, Managing Partner Meridian Institute

Summary:
Ecosystems provide businesses with numerous benefits or “ecosystem services.” Forests supply timber and wood fiber, purify water, regulate climate, and yield genetic resources. River systems provide freshwater, power, and recreation. Coastal wetlands filter waste, mitigate floods, and serve as nurseries for commercial fisheries.

However, human activities are rapidly degrading these and other ecosystems. The Millennium Ecosystem Assessment—the largest audit ever conducted of the condition and trends in the world’s ecosystems—found that ecosystems have declined more rapidly and extensively over the past 50 years than at any other comparable time in human history. In fact, 15 of the 24 ecosystem services evaluated have degraded over the past half century. The Assessment projected further declines over coming decades, particularly in light of population growth, economic expansion, and global climate change. Left unchecked, this degradation could jeopardize future economic well-being, creating new winners and losers within the business community.

Ecosystem degradation is highly relevant to business because companies not only impact ecosystems and the services they provide but also depend on them. Ecosystem degradation, therefore, can pose a number of risks to corporate performance as well as create new business opportunities. Types of risks and opportunities include:
* Operational:
-- Risks such as higher costs for freshwater due to scarcity, lower output for hydroelectric facilities due to siltation, or disruptions to coastal businesses due to
flooding
-- Opportunities such as increasing water-use efficiency or building an on-site wetland to circumvent the need for new water treatment infrastructure
* Regulatory and legal
-- Risks such as new fines, new user fees, government regulations, or lawsuits by local communities that lose ecosystem services due to corporate activities
-- Opportunities such as engaging governments to develop policies and incentives to protect or restore ecosystems that provide services a company needs
• Reputational
-- Risks such as retail companies being targeted by nongovernmental organization campaigns for purchasing wood or paper from sensitive forests or banks facing similar protests due to investments that degrade pristine ecosystems
-- Opportunities such as implementing and communicating sustainable purchasing, operating, or investment practices in order to differentiate corporate brands
* Market and product
-- Risks such as customers switching to other suppliers that offer products with lower ecosystem impacts or governments implementing new sustainable procurement policies
-- Opportunities such as launching new products and services that reduce customer impacts on ecosystems, participating in emerging markets for carbon sequestration and watershed protection, capturing new revenue streams from company-owned natural assets, and offering eco-labeled wood, seafood, produce, and other products
* Financing
-- Risks such as banks implementing more rigorous lending requirements for corporate loans
-- Opportunities such as banks offering more favorable loan terms or investors taking positions in companies supplying products and services that improve resource use efficiency or restore degraded ecosystems.

Unfortunately, companies often fail to make the connection between the health of ecosystems and the business bottom line. Many companies are not fully aware of the extent of their dependence and impact on ecosystems and the possible ramifications. Likewise, environmental management systems and environmental due diligence tools are often not fully attuned to the risks and opportunities arising from the degradation and use of ecosystem services. For instance, many tools are more suited to handle “traditional” issues of pollution and natural resource consumption. Most focus on environmental impacts, not dependence. Furthermore, they typically focus on risks, not business opportunities. As a result, companies may be caught unprepared or miss new sources of revenue associated with ecosystem change.

The Corporate Ecosystem Services Review (ESR) is designed to address these gaps. It consists of a structured methodology that helps managers proactively develop strategies to manage business risks and opportunities arising from their company’s dependence and impact on ecosystems. It is a tool for strategy development, not just for environmental assessment. Businesses can either conduct an Ecosystem Services Review as a stand-alone process or integrate it into their existing environmental management systems. In both cases, the methodology can complement and augment the environmental due diligence tools companies already use.

The Ecosystem Services Review can provide value to businesses in industries that directly interact with ecosystems such as agriculture, beverages, water services, forestry, electricity, oil, gas, mining, and tourism. It is also relevant to sectors such as general retail, healthcare, consulting, financial services, and others to the degree that their suppliers or customers interact directly with ecosystems. General retailers, for example, may face reputational or market risks if some of their suppliers are responsible for degrading ecosystems and the services they provide.

This publication describes the five steps for performing an Ecosystem Services Review. It provides an analytical framework, case examples, and helpful suggestions for each step. It concludes by highlighting a number of resources managers can use when conducting an Ecosystem Services Review, including a “dependence and impact assessment” spreadsheet, scientific reports, economic valuation approaches, and other issue-specific tools.

Global degradation of ecosystems and the services they provide threatens to alter the landscape in which business operates. The Ecosystem Services Review is a proactive approach for companies to manage the risks and opportunities that are emerging. Furthermore, by helping companies make the connection between healthy ecosystems and the bottom line, it will encourage not only more sustainable business practices, but also corporate support for policies to protect and restore ecosystems.

Background:
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Earlier this decade, [Allegheny Power] ... a U.S.-based electric utility wanted to divest its 4,800-hectare Canaan Valley property in West Virginia. Traditional approaches appraised the real estate at $16 million. Believing the property—with its pristine forests, marshes, and abundant wildlife—was worth more, the company commissioned an economic valuation of the marketable environmental benefits provided by the site, including its ability to sequester carbon and its wetlands. The eco-assessment boosted the total value to nearly $33 million. Allegheny Power subsequently sold Canaan Valley to the U.S. government—which merged it with an existing wildlife refuge—for the traditional appraisal price of $16 million. Using "bargain sale” provisions in the federal tax code, however, the company was able to claim a charitable contribution of $17 million for the property’s environmental value, yielding several million dollars in tax-related savings.

Contents:
Summary iv
Chapter I: Background 1
Ecosystem change as source of business risk and opportunity 1
Introducing ecosystem services 3
Linking ecosystem services and business goals: the ESR 8
Chapter II: Methodology 11
Overview 11
Step 1: Select the scope 13
Step 2: Identify priority ecosystem services 14
Step 3: Analyze trends in priority ecosystem services 20
Step 4: Identify business risks and opportunities 24
Step 5: Develop strategies for addressing risks and opportunities 30
Next steps 32
Chapter III: Resources 33

World Resources Institute – WRI; 10 G Street, NE (Suite 800), Washington DC 20002, United States; Tel: +1 202 729 76 00, Fax: +1 202 729 76 10; Web: www.wri.org
Meridian Institute; PO Box 1829, 105 Village Place, Dillon CO 80435, United States; Tel: +1 888 775 83 40, Fax: +1 970 513 83 48; Web: www.merid.org
World Business Council for Sustainable Development – WBCSD; Chemin de Conches 4, 1231 Conches-Geneva, Switzerland; Tel: +41 22 839 31 00, Fax: +41 22 839 31 31; Web: www.wbcsd.org ISBN-978-1-56973-679-1

World Business Council for Sustainable Development (WBCSD) www.wbcsd.org
http://www.wbcsd.org/DocRoot/WvmvdJDHdLmBAIciWrow/corporate_ecosystem_services_review.pdf