Corporate Environmental Performance in Practice

April 3, 2012
  • Linda Hwang

    Former Manager, Research, BSR

  • Sissel Waage

    Former Manager, BSR

Note: This article is the second piece in a two-part series on the uptake of ecosystem services. Read part one of our series, on the increasing integration of ecosystem services within government, the investor community, and business sectors.

As leading companies consider what it will take to move beyond the “exploratory” phase of ecosystem services, it’s possible to see the progress and sometimes setbacks associated with the integration of ecosystem services into corporate strategy. By integrating ecosystem services thinking into decision-making processes, corporate managers consider the broader systems in which the company is embedded and on which it relies. Beyond tracking individual parameters such as greenhouse gas emissions or water consumption, ecosystem services thinking and approaches asks how individual parameters interact within a dynamic system in order to enable (or undercut) the functioning of the system itself. Since BSR began tracking work on ecosystem services in 2007, it has become clear that, despite the public tone of caution among most business representatives, a growing number of corporate managers are engaging—albeit along a spectrum, from tracking the uptake of ecosystem services approaches within the public sector; to testing tools that assess the impacts, dependencies, and monetary value of ecosystem services; to crafting corporate goals and policies to hold people within companies accountable to meeting new benchmarks in their work.

The Many Forms of Engagement

Based on discussions BSR’s Ecosystem Services Working group conducted last year with corporate managers, we learned that some companies in select industries—such as oil and gas, mining, chemicals, entertainment, and tourism—have built a case for continued exploration and action on ecosystem services issues. In some instances, this is because they are receiving more questions from national governments reviewing potential agreements, increasing scrutiny from NGOs and investors, or even conviction that this issue is important at the highest corporate levels. For companies that have moved beyond “tracking” the concept, two approaches are emerging.

1. Decision-making approach:

In the cases described in the chart below, companies are applying ecosystem services concepts and thinking to identify opportunities and risks in different areas of business operations. Although we don’t yet have widely agreed-upon measurement parameters for ecosystem services, companies see value in incorporating risks and dependencies on ecosystem services into these processes, even at a high level.

Business Application Area

Real Estate Management

  • Assess “idle” lands in terms of what services exist and could be restored, with conservation value used to communicate potential value that could be realized.
  • Prioritize selection of lands for restoration and how to efficiently allocate resources to make decisions about parcels.

Corporate Finance

  • Factor into decisions about potential mergers, acquisitions, and major investments and new project development.

Corporate Strategy

  • Define and embody environmental leadership by applying ecosystem services approach and parameters.
  • Support brand value and differentiate from competitors.

Supply Chain Management

  • Assess potential for disruption of key supply chains.
  • Analyze parts of supply chain that may have quantifiable impacts and dependencies on ecosystem services.

Product Lifecycle Assessment (LCA)

  • Assess how lifecycle stages could impact biodiversity and ecosystem services.
2. Business activities approach:

In contrast to integration taking place at a high level, some companies are applying ecosystem services to specific activities, in effect expanding their environmental and social assessment processes. For instance, some companies are identifying an opportunity to use an ecosystems services approach because it is relevant to current regulation. In the United States, ecosystem services have come up in work on Natural Resource Damage Assessments as one way to consider the present and potential future value of environmental assets. Some environmental consultants working on these issues assert that ecosystem services assessments are already being conducted under such processes, although they do not use the terminology. Other companies are adopting the ecosystems services approach as they assess tools and other decision-support aids. Some companies are exploring whether ecosystem services assessment tools can lead to better decisions on capital expenditures, operational efficiency, risk management, and addressing customer needs. (For a detailed discussion of challenges associated with the current suite of ecosystem services decision-making aids, see BSR’s report “New Business Decision-Making Aids in an Era of Complexity, Scrutiny, and Uncertainty.”)

Some business managers who have tested these tools report that they do not add new information, nor do the tool outputs mesh well with existing corporate decision-making processes. Others conclude that the tools reveal impacts and dependencies on ecosystem services that they would not otherwise have uncovered with their current practices.

Barriers to Engagement

Our research also has highlighted three main barriers for companies in integrating ecosystem services into decision-making processes. Some companies believe current practices are sufficient to identify all relevant environmental impacts and opportunities. These firms, primarily in agriculture as well as some in forestry, believe that their current sustainability initiatives already address numerous ecosystem services parameters. In addition, some agricultural corporate representatives assert that their tracking of ecosystem services issues confirmed that the best approach to managing environmental impacts—including those related to ecosystem services—is to address each one individually, because “an integrated ecosystem services lens does not provide the level of detail needed to make corporate decisions.” In those cases, companies have stopped tracking ecosystem services issues and ended their external engagement on the topic. Other companies have determined that this approach is not relevant today, though it may become important in the future.

For example, a pharmaceutical company director asserted that it was not possible to make ecosystem services concepts relevant to any part of the business, primarily because it was not feasible to show that not taking action would represent reputation and/or regulatory risks. However, this representative added that if the company’s funding sources do begin to require information on ecosystem services, his company would take immediate action.

Similarly, within this category of companies are those that are debating the concept among geographic regions. European business units feel that both biodiversity and ecosystem services is critical to successfully managing environmental and social impacts, and they point out that “biodiversity and ecosystem services” rather than “biodiversity” or “ecosystem services” alone would drive more successful uptake given regional differences. In these cases, the public absence of activity masks a very active discussion on ecosystem services taking place inside companies. It is likely similarly nuanced within other industries. A third category of companies that chose not to take action are nonetheless closely monitoring the idea. These companies believe they will be compelled to integrate ecosystem services into business decisions but have not taken any action because they do not know how or where integration will take place. There is currently very little operational guidance for companies on how to apply ecosystem services concepts in practice.

What’s Next

Looking across the range of corporate activities on ecosystem services, we’re now seeing enough diversity in this space to suggest three scenarios that could play out going forward.

The financial services community gets serious about ecosystem services. In the short term, investors and other financial services firms integrate a few select ecosystem services indicators into due diligence models. In the mid- and long-term, the systemic use of ecosystem services information becomes part of mainstream investment processes, as reliable data become more available through online sources and models. Ecosystem services parameters are built into ESG data requirements, and managing ecosystem services risk becomes part of an integrated portfolio construction and management process.

Ecosystem goods and services “end states” go viral. Public agencies agree on the methodology for determining ideal ecosystem goods and services flows, and recast decision-making to optimize these flows for the benefit of the greater good. The U.S. Environmental Protection Agency’s Final Ecosystem Goods and Services defines the state to which lands have to be returned or maintained, which drives decisions on public lands. This research matures over the coming years and forms the foundation for a robust analytical framework that is applied by global government agencies responsible for managing public lands.

Occupy meets Earth First! Grassroots organizations focused on economic inequality, climate change, and environmental destruction coordinate to aggressively “name and shame” the businesses responsible for unintended, systems-level impacts. Adopting a systems-thinking lens that is animated by ecosystem services parameters, civil society organizations galvanize crowds around business decisions that affect the quality of clean air, water, productive soils, and generation of food and fiber, holding companies accountable for their actions with real data and convincing computer maps that show impacts in bright red.

The question remains how ecosystem services will evolve as an applied concept. It is both an opportunity and a risk for companies—particularly for those that choose not to engage.

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