Developing Corporate Capacity to Respond to Ecosystem Degradation

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Many companies lack the capacity to deal with natural resource constraints, according to a survey by the consultancy McKinsey & Company. This September, WRI will help fill that gap through its first-ever training sessions on the ecosystem services review.

Environmental trends will be critically important to businesses over the next five years, according to McKinsey’s global survey of corporate executives. Among fourteen global trends, “increasing constraints on supply or usage of natural resources” jumped from seventh to second place in the annual survey. Thirty-four percent of respondents now believe natural resource constraints are likely to have “a negative impact on profits over the next five years.”

Despite the recognized salience of environmental issues on the bottom line, the survey found that barely one-third of companies have taken actions to address this and other critical trends. Moreover, only seventeen percent report significant benefits from the actions they take. McKinsey believes that companies are not making the right strategic moves, as respondents noted “a lack of skills and resources.”

The World Resources Institute has shown that this can be improved with more appropriate tools and corporate systems.

Until recently, companies had no systematic way of understanding the threats and opportunities stemming from one part of this growing natural resource supply constraint – the degradation of ecosystems and the benefits or “ecosystem services” they provide. Ecosystems—like forests—supply wood, purify water, protect against natural disasters, and provide other ecosystem services. Over sixty percent of them are degraded. Left unchecked, this degradation threatens corporate performance.

But many companies are not fully aware of the extent and ramifications of their dependence and impact on ecosystems. Environmental management systems and due diligence tools are often not fully attuned to the risks and opportunities arising from the degradation and use of ecosystem services. For instance, many tools are more suited to handle “traditional” issues of pollution and natural resource consumption. Most focus on environmental impacts, not dependence. Furthermore, they typically focus on risks, not business opportunities.

The Corporate Ecosystem Services Review (ESR) is designed to address these gaps. It consists of a structured methodology that helps managers proactively develop strategies to manage business risks and opportunities arising from their company’s dependence and impact on ecosystems. It is a tool for strategy development, not just for environmental assessment. Businesses can either conduct an Ecosystem Services Review as a stand-alone process or integrate it into their existing environmental management systems. In both cases, the methodology can complement and augment the environmental due diligence tools companies already use.

Since the ESR’s launch in March, over thirty companies have used the methodology to do some of the following: identify new risks that their existing processes missed, develop strategies related to their dependence on natural resources and reduce their supply chain risk. A few examples:

• Mondi: Europe’s largest producer of office paper used the ESR to develop several new strategies for dealing with the ecosystem service challenges to their FSC certified South African plantations. Mondi is improving water efficiency by more aggressively clearing invasive species. They are also developing efforts to better match tree species to site conditions, utilize more water-efficient tree strains as they become available, and conduct prescribed burns more often.

• Syngenta: The global agribusiness company chose one of its growing customer segments, farmers in southern India, as the scope for its road test. The company identified a number of possible opportunities to help farmers either reduce their impacts on ecosystems or adapt to ecosystem change. Examples include: increasing pollinators in the region by selling natural seed mixes, selling bees, or offering assistance through extension services; using the company’s in-depth knowledge of plants to offer farmers an improved integrated pest management system; and engaging the company’s foundation and external research institutions to fill gaps in information about the status and trends of ecosystem services critical to agriculture.

Scores of other companies are gearing-up to conduct ESRs, integrate the ESR into their product development and environmental management systems, and use the ESR as a corporate-level benchmarking tool.

In response, a number of consulting firms are weaving the ESR into their products and services. Det Norske Veritas (DNV), for one, has immersed itself in the methodology and is working with clients to find effective ways to deliver the Review. ERM Group is preparing to launch a multiyear effort to integrate the ESR into its environmental impact assessments. In addition, numerous small consulting companies are conducting ESRs with their clients.

In order to speed the adoption of these ecosystem service-based strategies and spur innovation, WRI is encouraging more environmental consultants, auditors, assessors and certifiers to respond to this rising demand.

As part of this push, WRI is holding a consultant training event in early 2009 at its office in Washington, DC. The training will provide attendees with a deep understanding of the methodology, how it is being applied, and where innovation is currently occurring.

For more information, please call Suzanne Ozment (+1 202-729-7835, sozment@wri.org) or learn more at the Ecosystems Services Review site.