Private Sector’s Role in Recognizing the Value of Natural Capital in Focus

Meeting of public and private sector participants at an event on natural capital accounting hosted by IFC and the World Bank on March 5, 2013 in Washington, DC.

Forging public-private partnerships and coalitions, and using public policy incentives were some of the suggestions offered at an event hosted by the International Finance Corporation (IFC) and the World Bank this week to discuss how to better measure, manage, and value natural capital. Since Rio+20, there has been widespread support for natural capital accounting but there is now a sense of urgency to scale up efforts in the private sector and government.

"We are running out of time because our natural resources are degenerating at a very rapid pace," said Juergen Voegele, director of the Agriculture and Environmental Services Department of the World Bank. "Natural Capital Accounting needs to be embedded in our ambitions of how we are going to go about managing our economies and natural resources for the rest of this century," he added.

Experts from government, academia, international business, and statistics and accounting discussed the challenges involved in implementing such systems in a global economy, and what it will take to achieve the vision of a world in which natural capital is valued and managed responsibly.

"The private sector has an important role to play in the appreciation of natural capital," said Nena Stoiljkovic, Vice President for Business Advisory Services at IFC, the private sector-focused part of the World Bank Group. Natural capital management provides essential benefits for businesses and communities to improve their performance in environmental and social risk mitigation, resource efficiency, access to markets and financing, and improved reputation, she explained. At the same time, companies need guidance and tools on how to systematically measure, monitor, report, value, and account for natural capital.

Two panel discussions, one focusing on the private sector and the other on the public sector, discussed what has been done and what needs to happen next to develop and scale natural capital accounting models and tools.

Important first step

Helping corporate CEOs understand the asset value of nature is a crucial first step, but the methodologies and science and technology to incorporate those concepts into business practices are equally important, panelists agreed.

"Natural capital can have great theoretical value, but unless an engineer knows how to build a coastal wetland under the same coastal hazard mitigation specifications as a levee, that value is not going to be realized," said Glenn Prickett, the Nature Conservancy’s chief external affairs officer.

The forging of partnerships between public, private or non-profit groups is critically important, panelists said, and from an economic standpoint, companies may also need to shift their focus from short-term performance to longer-term incentives.

Additionally, to reach the scale needed for real outcomes, public policy measures should be in place to incorporate negative "externalities" into economic decisions.

Neil Hawkins, VP, Global EH & S and Sustainability, The Dow Chemical Company

Neil Hawkins
VP, The Dow Chemical Company

Neil Hawkins, Vice President of Sustainability and Environment, Health & Safety for The Dow Chemical Company said Dow wanted to know how they could "more progressively interface with nature, make better decisions for nature and at the same time add economic value to the company."

"We recognized…we did not have the expertise to do this. We are a sophisticated company in science and technology, but we realized this was a specific area and we needed partners to get started," said Hawkins.

Two years ago, The Nature Conservancy and Dow entered into a $10 million collaboration where scientists from both companies work together at three pilot sites (in North America, Latin America and the Asia-Pacific region) to recognize, value and incorporate nature into Dow’s global business goals, decisions and strategies.

Separately, Hawkins said his company became aware of already-instituted green infrastructure examples where Dow had saved significant amounts of money, including a saving of $10 million by restoring wetlands as a means of protecting one of their largest chemical plants from hurricane damage in the Gulf of Mexico, and another project that saved the company more than $100 million over the last decade.

Beneficial to public-private partnerships

Ros Harvey, director of Sense-T in Tasmania, Australia, which gives business, governments and communities the tools to make better decisions by integrating data sources, also pointed out the benefits of public-private partnerships.

Harvey said that if environmental-economic data, which is "often the domain of big business or big government," was compiled and made available to the community it would act as an incentive for small and large businesses to both optimize production and minimize negative effects to the environment such as water and air pollution.

Good public policy, through taxes and regulation, is also a big part of the equation, because placing a value on the benefits that nature provides is not exclusively the responsibility of the public or private sectors, Harvey said.

Speaking on the public sector panel, Pavan Sukhdev, a banker by training and the chair of the advisory board for The Economics of Ecosystems and Biodiversity (TEEB) and TEEB for Business Coalition, stressed corporate externalities need to be recognized because there is a $4.3 trillion cost (equating to 7% of global GDP) on society from "doing business as usual."

"It is not easy to find market-solutions to public-goods problems. The purpose of markets is not to solve social problems…responsible corporations and policy makers need to participate in that process," said Sukhdev.

He also added that unless measured, environmental resources cannot be monitored.

Brian Pink, Australian Statistician, Australian Bureau of Statistics

Brian Pink
Chief Statistician, Australia Bureau of Statistics

As Australia’s Chief Statistician, Brian Pink is well aware of this. Australia was one of the first countries in the world to compile detailed water accounts and now conducts annual land, energy, waste and carbon accounts while also working on completing biodiversity accounts.

"The water accounts have been fundamentally important in making decisions about how much water goes to different interests," said Pink.

In closing, he pointed out "there needs to be political interest and willingness" to do accounts. "If you don’t have good data you can’t make good decisions."

At Rio+20, 62 countries as well as 90 companies and financial institutions stated their support for natural capital accounting. The World Bank Group’s 50:50 campaign has since galvanized widespread support for the development of new approaches, methods, technologies and tools that help policy makers and business leaders recognize and better manage the value of natural resources.