The Evolution of Environmental Performance Expectations

October 11, 2011
  • Linda Hwang

    Former Manager, Research, BSR

Four years ago, BSR convened a group of leaders from the private sector as well as several academics and NGO representatives to discuss a new approach to scenario planning that considered the esoteric concept of “ecosystem services.” In particular, we were interested in how major capital decisions could undercut the flow of ecosystem services—the measurable benefits such as adequate supplies of clean water and protection from natural disasters provided by healthy, functioning ecosystems—across wide swaths of landscape. The rationale for action was as unclear to many as was the concept of ecosystem services itself. Could we place appropriate values on ecosystem services, based on the value they represent to society and their relative scarcity, so that they are viewed not as liabilities but as assets that should be protected and restored? Would knowledge of the importance of ecosystem services result in better stewardship of natural resources?

Over the next three years, as we brought together these same people, we noticed a greater acceptance and use of the concept, as consideration of individual parameters linked to air pollution and water and energy consumption expanded to include the structure and function of ecological systems.

Today, the shift in environmental thinking is clearly coming into focus, as a growing number of companies, financial services institutions, and policy makers have begun to incorporate ecosystem services into their decision-making processes. Several developments prompted this shift, including the integration of ecosystem services into the International Finance Corporation’s (IFC) performance standard 6, government policies in different countries that have begun to explicitly refer to ecosystem services within legislation, World Bank initiatives that are considering the value of these services as a potential component of GDP, as well as some positive, albeit preliminary, pilot applications of tools that assess impacts and dependencies on ecosystem services for the private sector.

Today, this progress is shaping the evolution of social and environmental performance expectations in fundamental ways that will have growing relevance to companies in the future. Beyond tracking individual parameters linked to air pollution and water and energy consumption, companies may be expected to manage their impacts and dependencies on ecosystem services, and those relied on and impacted by local communities where they operate.

Evolution, Not Revolution

Late last month, BSR’s Ecosystem Services working group convened a small, invitation-only roundtable discussion on the uptake of ecosystem services concepts within the public sector, among investors, and across actors in multilateral, NGO, and academic circles. Forty individuals from the private, public, and financial services sectors discussed various applications of ecosystem services concepts, sharing challenges and successes related to where, how, and to what extent they are incorporating ecosystem services into decision-making processes.

Key insights from the discussion included:

  • Ecosystem services vs. traditional risk-management approach that rewards positive behavior: While some organizations like the IFC and select asset-management firms are beginning to address corporate impacts and dependences on biodiversity and ecosystem services directly, other organizations continue to focus on more traditional risk-management indicators like impact assessments. For companies that have assessed their impacts on biodiversity, these financial services firms are looking for new, innovative forms of finance to help companies act on biodiversity and ecosystem services in positive ways.
  • The connection to communities: Multilaterals, research organizations, and NGOs like the Mediterranean Science Commission and the International Institute for Sustainable Development are also promoting ecosystem services concepts as a way to gain a more comprehensive understanding of risks related to livelihood issues. They identified a need for more research on how changes to ecosystem services affect communities.
  • A gradual integration into business: While some working group members have begun to integrate ecosystem services into specific corporate processes and projects, it is still too early to determine whether the business case can be made for “global rollout” of the concept across all operations. Other companies recognize the potential to improve risk management and continue to explore where ecosystem services can be considered within existing corporate processes such as environmental and social impact assessments, biodiversity action plans, or local benefits programs.

What’s Needed for Progress

Through discussions at the roundtable, participants recognized that there are a few things that would continue to push this evolution in environmental thinking and risk management:

  • Consistent terminology: Different organizations, individuals, and sectors use different words and phrases to describe activities that may or may not be the same thing—including terms such as “natural capital,” “ecosystem services approach,” “payments for ecosystem services,” “environmental markets,” and “valuing nature.”
  • Documentation of lessons learned: With the variety of global initiatives, we have a chance to draw lessons on what works and how to address recurring challenges.
  • Greater awareness among key actors of the growing depth of experience in application of ecosystem services approaches: A number of the policy makers in the room expressed surprise and appreciation in learning about the complexity of corporate activities related to integrating ecosystem services into existing procedures and protocols. With this knowledge, policy makers can consider how to create policies that would clarify the type of corporate activity that might require an ecosystem services approach and the type of information that should be made available to regulators. 
  • Better knowledge about the science of ecosystem services: All sectors applying an ecosystem services approach would benefit from understanding both what is known in terms of ecosystem dynamics and how they produce the services we rely on, as well as what should be a focus for current and future research.

Integrating People Into the Equation

In spite of the diversity of approaches to ecosystem services, there is a common set of goals, and one development at our latest meeting is a consensus around the need to focus more on the human dimension. As we get better at seeing the interdependencies between these services and people, our ability to make decisions on trade-offs among different ecosystem services is improved. For example, some actions to improve food productivity (provisioning services) such as monoculture cropping or forest clearing can sometimes lead to higher risk of flooding (regulating services) for downstream communities.

Sarah Connick, Chevron’s biodiversity manager, noted that this underscores the importance of respecting people’s different preferences and desires, which may help companies anticipate the unintended consequences of decisions on tradeoffs. “The story of environmental management across the centuries highlights the importance of humility,” she said. “In the American West, we removed wood debris from rivers to protect from floods, but we also removed habitat and fish populations. We manage ecosystems to manage out fire, and now we have the threat of catastrophic fires. As we go into this and say we’re going to manage for this particular service, we should ask ourselves: What are the consequences of these decisions?”

Looking Forward

Only one year ago, member companies spent a lot of time discussing the additional benefits that could be gained from applying ecosystem services tools when compared against their existing processes to manage environmental and social risk. The “delta,” as it was referred to, was a critical piece of information that would determine the extent to which companies could justify the use of these new approaches and even possibly tools for decision-making processes.

This year, participants discussed the “delta” within a very different context: What does the world look like today, and what is the world we want to create? Can the ecosystem services approach bring that about? And if not, what else can the private sector do to bring about that change?

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