The Economics of Natural Capital

 

By Robbie Brown, Fuji Xerox.

Most businesses benefit from ecosystem services. However it is becoming clear that these assets are finite and we simply don’t have enough natural materials to meet the demand.

All organizations have financial goals and making a profit is critical to be a financially sustainable organization.  To make financial capital a reality we need to draw from natural capital i.e. Mother Nature’s ‘bank’ of natural resources, to produce manufactured products and business services. Some typical natural resources may include trees, minerals and fossil fuels. Through the extraction process whole ecologies can be transformed, impacting ecosystem services that produce essential benefits such as clean air, water and a stable climate. We are essentially making constant withdrawals without a mandate for making any deposits back to nature’s reserves. If Mother Nature was a bank manager she'd serve us an ‘ecological overdraft’ notice. However, natural systems sit outside the conventional economy as externalities and therefore don’t appear on the business balance sheet. Unfortunately the invisibility of impacts on natural capital does not make a business immune to nature’s feedback. Natural systems are feeding back into social and economic systems and impacting financial capital. We are playing witness to this very fact with the increase in natural disaster events.

For example the increasing rate of heatwaves in Australia costs businesses over $7 billion in lost productivity annually. It is with these examples that businesses should be motivated to mitigate increasing environmental degradation.

Of course businesses should address low hanging fruit by investing in operational efficiency, such as lighting upgrades, print efficiency solutions and other IT infrastructure operations and workforce engagement to encourage sustainable commuting. But building a sustainable business is more complex and will eventually involve larger scale solutions to ensure that businesses are actively contributing to the reduction of their natural capital impacts in a more meaningful way.

How can businesses make better decisions and adopt more sustainable measures while meeting financial targets?

The first step is to ask the right question.  At what stage does your product or service negatively impact the environment most?

The answer will involve a better understanding of the lifecycle of your products and services. This could include measuring, and managing environmental impacts  over a products life cycle. The science of Lifecycle Assessment (LCA) helps businesses to determine the point in a product’s lifecycle that is most environmentally intensive. Through the process the business will engage with their entire supply chain where the majority of impacts likely lie. For some products the end-of-life (EOL) stage may be the most intensive. This is true for many paper products when they are landfilled instead of recycled. FXA’s paper LCA found that the carbon emissions of paper in landfill can account for over 30 percent of an entire product footprint. For other products the most destructive stages can be hidden deep in the supply chain exposing the business to significant financial and reputational risks.

The message is to make natural capital your ally by understanding the value it provides to your business both directly and indirectly. In 2016 the first iteration of the Natural Capital Protocol (NCP) will be available to help business transform their operations through understanding and incorporating their impacts and dependencies on natural capital. The intention of the NCP will be to bring the natural capital ‘externalities’ onto the business balance sheet help make better decisions, holistically manage their risks and adapt to new business opportunities.

Robbie Brown is Sustainability Manager at Fuji Xerox.

 

Photo Credit: Holly Lay