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The Quiet Shift: Integrating Natural Capital & Ecosystem Services into Business Risk & Opportunity Assessment

Submitted by: Sissel Waage

Posted: Nov 18, 2015 – 06:00 AM EST

Tags: business risk, esg, water usage, environment


A quiet, but potentially significant, shift is under way in how we understand business risk and opportunity. A systems thinking frame is clicking into business analysts lens’ in order to improve focus. 

This shift means that at some point in the coming years, gone will be the days in which companies can track only the trend line of their work on issue-specific performance indicators, such as carbon emissions, water usage, human rights violations, worker issues, and numerous other environmental, social, and governance (ESG) issues. Instead, with increasing demands on natural resources around the world, there is a growing need to understand corporate resource uses, and impacts, within the context of total user demands and total resource availability. 

The reason can be simply summed up. Decreasing use of one company is great, but it is in synchronicity with total supply and overall demand? 

Consider corporate water use, for example, which alone provides limited information. However, corporate water use data, as well as both present and projected future state of total overall supply and demand within a particular watershed (or basin) provides key information on whether or not over-allocation is underway (with potential future curtailment of use as well as stranded assets). 

The take-away is simple. Downward graphs of one company’s performance absent context (of total available supply, or a system’s ability to absorb impacts) is non-sensical. Increasingly, the focus—and questions—will be on whether companies are operating within system boundaries that enable those systems (business, economic, social and environmental) to continue functioning. 

This broadening of corporate environmental and social assessment is emerging following decades of research and work which is looking at systems function. For example, in 1997 Nature’s Services: Societal Dependence on Natural Ecosystems compiled the work of leading ecologists who urged us to focus on the functioning of natural systems, rather than their structure alone. The 2005 Millennium Ecosystem Assessment (MEA)—which incorporated the work of almost 1,300 scientists from around the world in a global assessment of the current state of ecosystems and their services—showed that the majority was in decline. In 2010, The Economics of Ecosystems and Biodiversity (TEEB) laid out the need for policy and a business response to halt ecosystem decline. The establishment of the Intergovernmental Platform on Biodiversity and Ecosystem Services (IPBES) signaled that scientific concern was becoming institutionalized within the global issue arena. 

Investor concern about a systems perspective—and the associated “ecosystem malfunction risk”—became clear with the inclusion of these issues within the World Bank Group’s International Finance Corporation (IFC) Performance Standards in January 2012. 

Companies are also awakening, as has been documented in detail regarding the 47 large global companies that now publicly discuss their efforts regarding ecosystem services. Governments are also honing in on ecosystem services issues, as evidenced by the growing number of task forces, policies, and other public sector initiatives that explicitly mention ecosystem services, as summarized in a BSR report

The question is no longer whether thinking about corporate impacts on natural systems will occur, but what is the current state of play in terms of corporate application. 

For large companies, with significant project footprints, one starting point is integrating ecosystem services assessment approaches into existing environmental and social (including health) impact assessment (ESIA) protocols, given the widespread (and often required) use of ESIAs. Based on research and a BSR-convened practice leader roundtable, through our Ecosystem Services Working Group, it is clear that the current emerging practice draws on Ecosystem Services Review for Impact Assessment (ESR for IA) approach, developed by the WRI, as well as collecting an expanded set of data, such as related to: 

»      the present and projected future state of the structure and function a particular ecosystem in which a company operates;

»      the stakeholders (or ecosystem services beneficiaries or user groups) and their circumstances, particularly in terms of benefits gained from ecosystem services, as well as

»      what these users value (though not necessarily in monetary terms), what alternatives exist, and how they are perceived.

For companies seeking to assess risk and opportunity associated with impacts (and dependencies) on ecosystem services, the hard truth is that obtaining some of this information will likely require more in-depth assessment and work than may be typically done—particularly in terms of data on ecosystem services supply and consideration of a wider range (across geography and time) of beneficiaries. 

The most time and cost-efficient approach will ultimately be through IT-based solutions for modelling ecosystem services impact scenarios based on various corporate project designs, such as those laid out in a report on a growing set of tools and decision aids. In addition, on-the-ground field assessment and stakeholder engagement will be needed and likely require multidisciplinary teams to integrate data collection early in the process, with special attention to inclusion of ecosystem services assessment issues within both environmental and social data gathering and stakeholder engagement. 

The reality is that these practices are not currently the norm. Yet, given the increasing attention on system dynamics related climate mitigation and adaptation, as well as watershed based corporate water strategy approaches, this situation is changing. 

We all live within the confines of gravity, as well as other natural dynamics associated with the ecological systems within which all of our businesses are based. It is, therefore, inevitable that factoring in ecosystem services into business risk and opportunity assessment will occur. It is just a question of when. The timeframe seems to be sooner every year.

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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