Measuring Corporate Performance in an Era of Complexity, Scrutiny, and Uncertainty

May 17, 2011
  • Linda Hwang

    Former Manager, Research, BSR

  • Sissel Waage

    Former Manager, BSR

Read the related report on corporate ecosystem services tools.

In March, the apparel company Puma joined a growing roster of companies trying to improve their understanding of corporate performance by placing a dollar value on their use of “ecosystem services,” the natural systems that businesses rely on to provide raw materials, adequate supplies of clean water, and protection from natural disasters. Following in the footsteps of companies like Dow Chemical, which launched a US$10 million initiative to value and incorporate nature into its global business decisions, and Disney, which passed a corporate policy to produce a “net positive impact” on ecosystems, Puma plans to produce an environmental profit-and-loss statement that reflects its full economic impact on ecosystem services.

As interest in this area grows, companies such as Parametrix and Exponent have developed tools businesses can use to measure and value ecosystem services. While this is a positive development, the value of these tools has been difficult to determine, most notably due to the limited number of tests in corporate settings, as well as uncertainty related to data, time, expertise, and costs required to run the tools.

To address this challenge, BSR’s Ecosystem Services Working Group set up a pilot test to compare the performance of seven tools in one potential corporate application: What are the potential impacts of a hypothetical large-scale residential housing development in the U.S. state of Arizona’s San Pedro watershed, in which there would be both increased water demands and disturbances to the Chihuahuan desert scrub associated with the development? We asked each tool team to focus on four parameters: water provisioning, carbon sequestration, cultural services, and biodiversity. For each tool, we also tracked the time, cost, level of expertise required, and other factors associated with its use.

The pilot test showed that while side-by-side comparisons are difficult due to significant differences among the tools and their intended applications, there is an opportunity to refine the approach of the tools as a whole to make them more useful to companies looking for an effective “off-the-shelf” application that can also fit into existing corporate protocols.

The Challenge of Side-by-Side Comparisons

There is an ongoing debate over how to translate ecosystem services concepts into clear, commonly accepted measures that can inform decision-making. This debate is reflected in the diverse set of methods and metrics applied by each tool-developer team, and, as a result, it is not easy to directly compare one tool to another.

For example, ARIES and InVEST are both computer models that conduct detailed, landscape-level analyses and simulations of potential activities. But the comparison ends there. ARIES provides maps of ecosystem services flows using data within artificial-intelligence-enabled models. That tool also shows levels of certainty. InVEST, on the other hand, applies ecological-attribute data of land-use land-cover data types within an ArcGIS environment.

Within these different contexts, the two models use distinct metrics to measure and report on impacts to ecosystem services from various scenarios. In our study, while the findings were the same, the process was distinct.

Because side-by-side comparisons of these tools are not possible, decision-makers must evaluate each one uniquely based on the tool’s credibility, cost, ability to replicate findings, and the added value (such as cost savings and streamlined permitting processes) the tool provides within corporate environments. In some cases, this could mean a combination of tools is necessary.

“Off-the-Shelf” Corporate Applications

We believe none of these tools is ready for broad-scale implementation due to a range of factors, especially given the gap between what tool developers are offering and what corporate decision-makers actually need—that is, a flexible, modular tool that helps them make more immediate, practical decisions and assists with their understanding of how stakeholders value and make trade-offs among ecosystem services in specific contexts.

To date, many of the tools require expert technical support to provide detailed assessments using powerful modeling and scenario development for forecasting. If the tools do incorporate stakeholder preferences (and not all do), it is done in different ways.

These tools would benefit from more test applications and refinements in corporate settings, as well as the exploration of potential compatibility among the tools for specific applications and independent validation.

Comparisons to Existing Corporate Protocols

Companies today have a suite of processes and protocols to assess their environmental impact and performance. From environmental and social impact analyses and life-cycle assessments to performance standards and good practice guidelines, these decision-making aids help companies explore their options at the project and site level. If their use is to be justified within corporate decision-making processes, ecosystem services tools must demonstrate key benefits not captured by existing processes.

Now, the major challenge is the diversity of tools and business settings, which makes identifying a specific tool for a particular context and use difficult for decision-makers. However, given more pilot studies examining a series of private-sector applications across multiple industries and contexts, it would be clear how businesses could use these tools in conjunction with existing corporate processes.

A Look Forward

The findings of this comparative assessment leave many open questions. However, they also indicate that this field is rapidly evolving and worthy of close tracking by corporate decision-makers over the coming months and years.

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