Ecosystem services — or the flows of natural capital from the environment into human economies and societies – have traditionally been thought of and treated as ‘free,’ resulting in their mismanagement and degradation. Emerging research is beginning to change this paradigm by quantifying the values of ecosystem service flows — and the implications are becoming especially relevant for corporations.
Recent data shows that if companies had to pay for the full environmental costs of their activities, they would have lost 41 cents of every dollar earned in 2010. The business community is beginning to see a threat in ignoring the value of natural capital across operations, and an opportunity in better understanding the flow of ecosystem services throughout supply chains. The concept of ecosystem valuation is therefore an increasingly practical and influential aid to corporate decision-making.
Corporate understanding of natural capital impacts and investments is especially critical in addressing rampant global deforestation. The WBCSD estimates the loss of ecosystem services from deforestation — including degraded water, biodiversity and climate services — to cost $2-5 trillion each year. According to the EPA, the climate impacts of deforestation alone have caused what should be our largest terrestrial carbon sink to become our second largest source of global emissions.
The international community has therefore come together to advance natural capital approaches to forest conservation, creating a mechanism known as Reducing Emissions from Deforestation and Forest Degradation (REDD+). Originated under the United Nations Framework Convention on Climate Change (UNFCCC), REDD+ quantifies and values the carbon storage services that forests provide — helping change the economic incentives that govern forest management and international development. With $4.5 billion pledged in multilateral funding, REDD+ represents the world’s most developed and comprehensive natural capital solution to forest conservation.
REDD+ presents a key opportunity to more actively manage the natural capital upon which businesses rely. Forward-thinking corporations understand that we are moving into a low-carbon, resource-constrained economy and that their capital management must adapt accordingly. REDD+ enables mission-driven companies to pursue market signals, mechanisms and incentives that encourage investments to manage the world’s forests rather than mine them.
Thus we are increasingly seeing corporate engagement with and benefit from REDD+. Puma’s inaugural Environmental Profit & Loss Account (EP&L) has catapulted that company to the forefront of natural capital management. Understanding their environmental profits and losses across their operations has guided Puma’s decision to become one of the world’s leading REDD+ buyers. Other companies offsetting their unavoidable greenhouse gas emissions by investing in the carbon storage services of the world’s remaining forests include Microsoft, Allianz, Disney and more. The financial sector is also transitioning towards natural capital valuation and investment in REDD+, with Althelia’s Climate Fund recently raising $80 million for REDD+ activities and the Climate Markets & Investments Association (whose members include Bank of America, Merrill Lynch, PwC, JPMorgan, and more) launching a Working Group to ensure the private sector’s participation in REDD+ development.
With the value of natural capital increasingly understood and quantified, forward-thinking companies must anticipate the growing relevance of ecosystem service management. REDD+ is the world’s most advanced natural capital approach, providing developed and transparent financial infrastructure to invest in the carbon storage services that global forests provide. Slowing this global forest loss and degradation can generate $2-5 trillion in valuable goods and services.
So who’s to say that money doesn’t grow on trees?
This is a cross-post from Sustainable Brands, a gathering of sustainability thought leaders and business innovators who have come together to develop solutions and opportunities to profitably innovate for sustainability.
Image Credit: Geoff Gallice via Wikimedia Commons