Businesses that invest in ecosystem services will be best positioned in a market that is becoming increasingly tough on ethical sourcing, according to a new report.
The report presents the final conclusions on the two-year international study The Economics of Ecosystems and Biodiversity (TEEB). Released on the 20th of October, the report aims to mobilize businesses, governments and citizens to recognize the wider benefits that forests and other ecosystems offer – such as climate regulation, erosion control and water purification.
Capturing the environment’s true value
Ecosystem services can account for as much as two-thirds of the total economic value of tropical forests, the report uncovers. In one case, climate regulation in Cameroon was valued at US$ 842-2,265 per hectare per year compared with US$ 560 for timber. In Hawaii, indirect watershed benefits of the 40,000 hectare Ko’olau watershed were valued at US$ 1.42-2.63 billion.
By putting a price on these services, a stronger businesses case is made for maintaining nature’s assets in today’s financially-driven system.
More than 500 scientists, business leaders, policy makers and citizens contributed to “Mainstreaming the Economics of Nature” with an astonishing conclusion.
“Do nothing, and not only do we lose trillions worth of current and future benefits to society, we also further impoverish the poor and put future generations at risk,” said Mr. Pavan Sukhdev, TEEB study leader at the report launch at the UN Convention of Biological Diversity COP10 in Nagoya, Japan.
Mr. Pavan Sukhdev
Emerging market opportunities and risks
Public awareness of biodiversity loss is on the rise, leading to changes in consumer purchasing decisions. A 2010 survey carried out by IPSOS on behalf of the Union for Ethical BioTrade revealed that 78-94% of consumers in the EU, Brazil, and the US would stop buying from companies that disregarded ethical sourcing. A follow-up study revealed similar trends in Japan and South Korea.
"Smart business leaders realize that integrating biodiversity and ecosystem services in their value chains can generate substantial cost savings and new revenues, as well as improved business reputation and license to operate,” said Joshua Bishop, the TEEB for Business report coordinator and Chief Economist of IUCN.
Certification and REDD-iness for climate change
The TEEB study concludes that “certification can be an important tool for capturing the value of ecosystem services". There is evidence that forest product labeling is beginning to move from a niche market to the mainstream. Alongside the substantial growth in certified products, several brand owners have added eco-friendly products to their major branding, as Domtar did with its FSC-certified EarthChoice papers.
The TEEB study also recommends investment in the UN REDD+ program (Reducing Emissions from Deforestation and Forest Degradation) by paying developing countries to preserve their forests, and is calling for its rapid implementation.
Such forest-based carbon offsets in regulated markets are estimated to grow from US$ 0.5 million in 2008 to US$ 5 billion in 2020.
A framework for business opportunities
The TEEB study is calling for a serious rethink to provide a framework that better supports and holds businesses accountable. Economic incentives supporting a “polluter pays” principle and tax breaks for providers of ecosystem services are among the suggested means.
Recognizing that natural resources are economic assets, the TEEB study is stressing the importance of rapidly upgrading national accounts beyond GDP to include natural capital stocks. An immediate focus is placed on forest stocks and ecosystem services.
How governments adopt these recommendations is already unfolding. Mr. Jairam Ramesh, India’s Minister for Environment and Forests explains how India will embrace the TEEB approach, “India is planning a TEEB for India study to assess its natural capital. We are committed to developing a framework for green national accounts that we can implement by 2015.”
Interestingly, business leaders in biodiversity-rich developing countries are relatively more concerned about the loss in ‘natural capital’ than their counterparts in the West, according to a 2009 Price Waterhouse Cooper survey. More than 50% of CEOs surveyed in Latin America, 45% in Africa see declines in biodiversity as a challenge to business growth, compared with less than 20% in Western Europe.
Investors are warming up to ecosystem values
In anticipation of this trend continuing, investors are exploring new opportunities linked to biodiversity and ecosystem services and are also concerned about potential risks. The TEEB study is calling for better reporting by businesses of their environmental impacts that will spur changes in business investments.
A newly published report by the UN-backed Principles for Responsible Investment estimated that globally, human activities caused global environmental damage at US$ 6.6 trillion in 2008.
The "top" 3,000 companies were responsible for over 2 trillion US$ worth of eco-damage.
The intent is to use these findings to inform investors of the possible future consequences for their portfolios.
Sources: www.teebweb.org, Union for Ethical Biotrade, UN Principles for Responsible Investment
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