Regulators from both the financial and environmental areas will need to play a stronger role if valuation of BES is to become more of a component of business activity. In the meantime, momentum toward a stronger role for BES valuation in business is being addressed by a variety of organizations.
For example, determining BES values in the business context and bringing these to the attention of policymakers, citizens, and businesses are the goals of The Economics of Ecosystems and Biodiversity Report for Business (TEEB). TEEB is a collaborative undertaking involving participation by the United Nations Environment Programme, the European Commission, and the governments of Germany, the United Kingdom, Norway, the Netherlands, and Sweden.
While the economic consequences of uncontrolled natural exploitation are now better understood, the process of integrating BES into corporate economics remains complex and elusive in some sectors. TEEB should be reviewed in detail by business and environmental managers.
Following are key points and recommendations you should think about.
Integrating biodiversity. A business commitment to biodiversity and ecosystems begins with corporate governance followed by integration into all aspects of management. Goals and targets for biodiversity and ecosystem services can be folded into business risk and opportunity assessment; operations and supply chain management; and financial accounting, auditing, and reporting. New and improved information systems are needed to support analysis and decision making about BES at the corporate level, site/project level, and product level, and for internal and external reporting of corporate performance.
Measurement. Standard environmental performance indicators focus on direct inputs (e.g., water, energy, materials) and outputs (e.g., pollutant emissions, solid waste). Measurement of BES requires consideration of business impacts on all components of biodiversity (e.g., genes, species, ecosystems), as well as dependence of business operations on tangible biological processes (e.g., natural pest and disease control, nutrient cycles, decomposition). Environmental management systems need to be expanded and refined to enable companies to assess BES along product life cycles and value chains. Despite the need for more work, companies can begin to measure their impacts and dependence on BES using available metrics and reporting tools, even as they contribute to developing the field.
Valuation. Reliable methods are available to determine the economic value of BES. The use of these methods in, for, and by business can help expedite the transition from ecological impacts and dependence to the business bottom line. Ultimately, the ability of and commitment by business to use such valuations in their financial accounts may depend on developments in accounting standards, financial disclosure requirements, and environmental liability regulations.
Reporting. Financial regulators are beginning to provide guidance on how companies should report environmental issues, particularly GHG emissions and mitigation. In contrast, biodiversity and ecosystem services are usually treated superficially in company reports and are rarely seen as financially material or relevant to annual financial reporting. Lack of standard performance metrics for BES that can be used at the company level and monitored continuously is one obstacle to improved monitoring and disclosure. The Global Reporting Initiative (GRI, http://www.globalreporting.org) provides guidance and some basic indicators to start with; these can be refined to meet specific industry needs, such as through GRI sector supplements.
Market growth. BES offers opportunities for all business sectors. Integration of BES into business can create significant added value for companies by ensuring the sustainability of supply chains or by penetrating new markets and attracting new customers. New biodiversity businesses include ecotourism, organic agriculture, and sustainable forestry. These activities respond to the growing demand for sustainable goods and services. Tools for building biodiversity businesses are available or under development and include biodiversity performance standards for investors, biodiversity-related certification, assessment and reporting schemes, and voluntary incentive measures. Biodiversity markets are emerging alongside carbon markets and include credits for watershed protection.
Social development. BES is not routinely considered in corporate decision making related to social investment programs. As such, some companies have programs that support biodiversity conservation and separate programs that support local economic development. In many cases, these programs conflict with or fail to recognize potential synergies. A better understanding of how governance arrangements and especially property rights contribute to biodiversity loss and ecosystem degradation is essential to design responses that are both ecologically sustainable and socially acceptable. For example, Sygenta, an international seed and pesticide corporation, supports a project providing training and agricultural extension services to small farms in Kenya. The goal is to improve crop yields and income by introducing modern agricultural techniques, including conservation-oriented farming practices and improved market access. Sygenta supports similar projects in India, Mali, Brazil, and Bangladesh.
Investment opportunities. Biodiversity and ecosystem services offer opportunities for investors and entrepreneurs. But there is a need to agree on priorities and adopt an agenda for action—by business leaders, the accounting profession, governments, and other stakeholders. For example, most existing initiatives are inadequate at quantifying biodiversity impacts. Methodologies for sector- and business-level quantification of BES are needed, accompanied by appropriate reporting requirements. Also, the accounting profession and financial reporting bodies should accelerate efforts to provide standards and metrics for disclosure and audit/assurance of BES impacts.
Finally, TEEB regards strong involvement by government as essential. Governments can promote BES by removing environmentally harmful subsidies, offering tax credits for conservation investment, establishing stronger environmental liability (e.g., performance bonds, offset requirements), developing new ecosystem property rights and trading schemes (e.g., water quality trading), encouraging increased public access to information through reporting and disclosure rules, and facilitating cross sector collaboration.