Corals at Ocean Park, Hong Kong

+ Businesses that begin to consider natural capital in their decisions now will be the ones to gain a competitive advantage in a future of constrained and regulated resources.

I feel strongly that businesses should consider natural capital in their decisions now if they want to have a competitive advantage in a future of constrained and regulated resources.
 
Natural capital is the elements of nature that produce value to people, such as the stock of forests, rivers, land and oceans. The outputs of natural capital are ecosystems services, a term that describes the benefits people get from these elements.

According to the Millennium Ecosystems Assessment, two-thirds of the natural capital on which society and business rely is either degraded or in decline. This is a problem for businesses because a shortage of natural resources can affect supply chains, share prices and, ultimately their existence.

Yet because corporations have effectively been getting natural capital for free, there has been little direct incentive for them to act. Putting a value on nature changes that. It enables forward-thinking industries to instil resilience and manage risk more effectively.

Indeed many companies have already taken the idea of natural capital on board. Clothing brand Puma was one of the first to develop an environmental profit and loss account, which attempted to capture the true environmental (external) cost of producing its products. In the extractive industries, companies like Cemex, Lafarge and Rio Tinto actively consider natural capital in their operations. And the food industries are working with farmers to reduce impacts on ecosystems services.

Of course, this isn’t an easy process. It can be hard to uncover the data you need to understand the complete picture of natural capital or ecosystems services. And you simply can’t monetise all the value people gain from ecosystems – such as spiritual, cultural heritage or aesthetic benefits.

But it is now becoming essential in many industries to try and account for natural capital. The impact of constrained resources on supply chains, the requirements of increasing regulation, and the risk of reputational damage mean that keeping nature off your balance sheet is no longer an option.

What’s more, natural capital is increasingly included within corporate social responsibility reporting and organisations such as the International Finance Corporation has incorporated ecosystem services assessments within its standards.

To me it’s clear. The businesses that begin to consider natural capital in their decisions now will be the ones to gain a competitive advantage in a future of constrained and regulated resources.