Trucost Blog / 27 May 2014

Valuing Nature: A Pricey Distraction or Priceless Investment in Future-Proofing Your Business?

By providing visibility of the environmental business case alongside the financial business case, environmental considerations can be truly integrated in business decision making.

A new wave of companies are talking about the work they’ve been doing to account for the goods and services their business gets from nature – so-called ‘natural capital.’  Why the fuss?

Last year, 29 companies in the S&P 500 publicly disclosed they are putting an internal shadow price on carbon (their greenhouse gas emissions) as part of their core business strategy.  Research by responsible business network BSR in March 2014 found that 47 companies published information in the past year on how they are considering natural capital – a dozen more than in 2013.  Many are doing so in partnership with Trucost, most recently pharmaceutical company Novo Nordisk, cosmetics company Natura, carpet tile manufacturer Interface, and agricultural products firm Monsanto.  In 2011, Dow Chemical announced a $10 million partnership with The Nature Conservancy to better measure and manage its dependence on natural capital.

We will discuss these and other case studies on May 28, during SOCMA’s 2014 Marketplace and Chemical Services Directory Webinar Series: “Unlocking the Business Benefits of Natural Capital Accounting.”  Trucost will present recent research and global trends illustrating how businesses rely on natural capital.  Please make plans to join us for this informative webinar.

Traditional measures of environmental performance – water use, land use, carbon emissions and other pollutant impacts – are all measured in different physical terms (like gallons or tons), so they can’t be compared to one another.  Reporting all environmental performance measures in the same unit – the dollar – solves this problem.  By placing a monetary value on natural capital, companies can also put indicators of environmental performance alongside established measures of financial performance like revenue or profitability.

These votes of confidence in natural capital accounting are good news for those business people who understand just how much business relies on critical services that nature provides, such as fresh water, clean air and a stable climate. Today, the market treats these resources as if they were free, or at best, worth much less than they really are.

It’s often only when there’s a hiccup that we realize how much business depends on nature. Normally, cooler and windier weather in the winter could be relied on to dissipate the air pollution caused by road traffic in our big cities.  But the recent unseasonably warm weather caused smog in Paris, which led officials to limit traffic in response to health concerns, creating major business disruptions.  Issues such as extreme weather events cause power outages or disruptions in supply chains that make it difficult to get raw materials.  Sharply rising demand for basic commodities like palm oil are under increasing scrutiny because rainforests are cut down to make way for plantations.  Volatile commodity prices in the past 10 years are making business as usual increasingly difficult.

Sport lifestyle brand PUMA was the first company willing to make a big splash about its work to understand natural capital.  PUMA and parent company Kering published the world’s first environmental profit and loss account (EP&L) in November 2011.  Since working with PUMA, we have been commissioned by more than 50 companies to apply natural capital accounting in different ways to address business risks and opportunities.

In February, Novo Nordisk published the results of its EP&L. It showed that the company’s environmental impacts cost €223 million a year.  Yet its own operations are responsible for only 13 percent of these costs.  Three quarters came from supply chain impacts such as greenhouse gases released from agricultural production of maize, the main ingredient in insulin.  Insights like this will help Novo Nordisk focus improvement efforts under its well-established sustainability program.

Companies can also use natural capital valuation to make specific decisions about production processes. Brazilian group Conservation International has just published the results of work it commissioned from Trucost on behalf of Monsanto and Natura, which shows that growing soybean or palm oil together with other crops and preserving indigenous forests has far greater natural capital value than monocultural crop production.

Natural capital accounting can also be used in product marketing and sales.  Visualize the appeal in being able to tell a customer, for example, that your product only costs the environment $2 compared to a competitor’s product which costs the planet $5.  It is a simple and engaging way of describing environmental impacts using a single metric that is meaningful to industrial buyers.

By providing visibility of the environmental business case alongside the financial business case, environmental considerations can be truly integrated in business decision making.  Trucost’s mission – as it was in 2000 when we were founded – is to direct the flow of capital toward business models that will be profitable and sustainable in an era of increasingly volatile commodity prices and constrained resources like clean air and water.  We are confident that these efforts are a priceless investment in building more resilient businesses.

Want to learn more about natural capital accounting?  Sign up for the second installment of SOCMA’s 2014 Marketplace and Chemical Services Directory Webinar Series: “Unlocking the Business Benefits of Natural Capital Accounting,” co-hosted by Trucost. During the webinar, Trucost will teach you how to future-proof your business strategy and create more resilient supply chains, ultimately improving your bottom line.

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