This piece originally appeared in the India Business Council for Sustainable Development quarterly magazine, Volume 8, Issue 2, in July 2011.
In August of 2010, the Indian electricity company Satluj Jal Vidyut Nigam Ltd (SJVN) lost its source of power in Himachal Pradesh. Deforestation and river alterations upstream of the company’s dam had aggravated erosion in the area. Without the trees, heavy rains washed an unprecedented amount of sediment straight into the water, lowering dam reservoir capacity and power output. The resulting 22 days of closure for the facility left millions of people without power and cost the company upwards of $42 million, or INR. 198 Crore. SJVN’s experience illustrates how companies do not just impact ecosystems, but also depend on them. In fact, ecosystems provide businesses with numerous benefits, or “ecosystem services.” For instance, forests supply timber, purify water, regulate climate, prevent erosion, and yield genetic resources for medicine. River systems provide freshwater, power, and places for recreation. Coastal wetlands and mangroves filter waste, mitigate floods, and serve as nurseries for commercial fisheries.
Many companies, however, are not fully aware of the benefits that ecosystem services provide to their bottom line. To overcome this challenge, the World Resources Institute (WRI) launched The Corporate Ecosystem Services Review (ESR) in 2008, along with the World Business Council for Sustainable Development and the Meridian Institute. The ESR is a five-step method designed to help managers systematically identify and address business risks and opportunities, resulting from changes in ecosystems and ecosystem services.
Ecosystem change as a source of business risk and opportunity
For centuries, humanity has been degrading ecosystems, despite its dependence on them. The Millennium Ecosystem Assessment—the largest audit ever conducted of the condition and trends in the world’s ecosystems—found that ecosystems have declined more rapidly and extensively over the past 50 years than at any other comparable time in human history. In fact, 15 of the 24 ecosystem services evaluated have been degraded over the past half century. The Assessment projected further declines in the coming decades, particularly in light of population growth, economic expansion, and global climate change.
This degradation is already creating new winners and losers in business. Companies may be caught unprepared by new regulations, scarcity of inputs, or reputational risks arising from being associated with ecosystem degradation. Others have seized opportunities to restore or protect ecosystem services in ways that improve business.
A few examples of corporate responses to ecosystem-related challenges include the following.
The City of Kolkata’s water utilities have designed cost-effective sewage treatment areas that use natural wetlands’ ability to purify water.
In 2008, Autovias, a Brazilian highway management company, reduced road maintenance costs by diverting flood water to the Guaraní Aquifer, which increased groundwater reserves for nearby communities.
In 1993, the Campbell Soup Company saved over $250,000 by encouraging tomato farmers in Mexico to use integrated pest management, where farmers enhance natural habitats in ways that reduce pest outbreaks. This practice also reduced pesticide application by 96%, reducing regional water pollution.
Seizing opportunities through the Corporate Ecosystem Services Review
The ESR is designed to help companies respond more proactively to changes in ecosystem services. The ESR does this by helping managers develop strategies to manage business risks and opportunities, arising from their company’s dependence and impact on ecosystems. Thus, it is a tool not just for environmental assessment, but also for strategy development.
In particular, the ESR helps companies identify ecosystem services that provide value to their bottom line. It also provides a framework for evaluating the business implications of trends in ecosystem services, and for developing strategies that minimize emerging risks and take advantage of potential opportunities.
Since its launch in 2008, an estimated 300 companies have used the ESR. The ESR has provided value to businesses in industries that directly interact with ecosystems, such as agriculture, beverages, water services, forestry, electricity, oil, gas, mining, and tourism. But, it can also be applied to sectors, such as general retail, consulting, and financial services to the degree that their suppliers or customers interact directly with ecosystems.
ESR in action: Mondi addresses water issues
Mondi, Europe’s largest pulp and paper company, conducted an ESR at its tree plantations in South Africa. The ESR highlighted methods by which the company could increase its supply of fresh water, while improving the surrounding environment, strengthening its relationship with local communities, and reducing operational costs.
For example, Mondi combined its interests in securing water supplies and tapping into the growing market for biomass fuel by clearing thirsty invasive vegetation from its plantations and using the biomass as feedstock for power generation. Clearing invasive species was important for watershed health, but costly. Mondi found that it could use the feedstock in its own mills or sell it to a biomass pellet manufacturer. By turning a cost into savings, Mondi has been able to expand routine invasive species clearing by 30% per year over the past two years.
Ecosystem services in action: BC Hydro balances competing demands for ecosystem services
BC Hydro, a government-owned hydroelectric utility in British Columbia, Canada, found itself at odds with its regulators and others who relied on the waterways of British Columbia for fishing, recreation, spiritual values, and drinking water. In response to growing tensions among users, BC Hydro initiated a water use planning programme to define suitable operating parameters that would balance environmental, social, and economic values.
The water use planning process, which was voluntary in nature, included participants from environmental organizations, native tribes, the government, and nearby communities. BC Hydro developed a series of model-generated scenarios that illustrated how each user of the ecosystem would be affected as the company altered two variables—reservoir level and river flow rate. Participants reviewed each scenario, discussed the tradeoffs among ecosystem services, and used a value-based trade-off system to agree on a preferred option. That option became the operating plan for the hydroelectric facility.
Integrating ecosystem service considerations into the water planning process proved to be a success for BC Hydro. Even though the number of operating constraints has increased, water use planning has yielded a number of benefits, including operational clarity and certainty, regulatory certainty, fewer lawsuits, and improved stakeholder relationships.
Connecting ecosystem services to your business goals
Global degradation of ecosystems and the services they provide is altering the landscape in which business operates. The ESR is a proactive approach for companies to manage these emerging risks and opportunities. Furthermore, by helping companies make the connection between healthy ecosystems and the bottom line, the ESR facilitates sustainable environmental practices and more profitable and resilient businesses.
For more information go to: www.wri.org/ecosystems/esr