The important business of ecosystems services

15th April 2011

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Ecosystem services are crucial to how we live and businesses must take them seriously, argues Dr Mark Everard

Put simply, ecosystem services define the benefits people derive from nature. Many familiar goods such as fresh water, food and fibre are traded today through the economy. However, nature provides many more services with no assigned value.

These “invisible”, yet critical, services include regulation of climate, air quality, flooding, culturally valued landscapes, recreational opportunities, habitat for wildlife and pollination.

The diverse humanitarian and environmental consequences of excluding these services from economic systems and decision making, and the subsequent degradation of ecosystems crucial to continuing human wellbeing and economic opportunity, are becoming increasingly evident.

The UN Millennium Ecosystem Assessment (MEA), published between 2004 and 2005, assessed the status of all major global habitat types and determined their likely ability to continue to sustain human wellbeing.

The MEA classified existing ecosystem services into four categories: provisioning, regulatory, cultural and supporting (see below). The MEA concluded that there will be dire consequences if society does not redress its relationship with ecosystems in a concerted manner.

However, growing understanding of our dependence on ecosystem services results in a correspondingly greater eff ort to find innovative ways to protect them. Change, the MEA assures us, is still possible.

The Millennium Ecosystem Assessment classification of ecosystem services

Provisioning services

Fresh water, Food (e.g. crops, fruit, fish, etc), Fibre and fuel (e.g. timber, wool, etc), Genetic resources (used for crop/stock breeding and biotechnology), Biochemicals, natural medicines, pharmaceuticals, Ornamental resources (e.g. shells, flowers, etc),

Regulatory services

Air-quality regulation, Climate regulation (local temperature/precipitation, greenhouse-gas sequestration, etc), Water regulation (timing and scale of run-off , flooding, etc), Natural hazard regulation (i.e. storm protection), Pest regulation, Disease regulation, Erosion regulation, Water purification and waste treatment, Pollination

Cultural services

Cultural heritage, Recreation and tourism, Aesthetic value, Spiritual and religious value, Inspiration of art, folklore, architecture, etc, Social relations (e.g. fishing, grazing or cropping communities),

Supporting services

Soil formation, Primary production, Nutrient cycling, Water recycling, Photosynthesis (production of atmospheric oxygen), Provision of habitat

Evolving economy and business environment

Our economic model is rooted in the conversion of primary resources into useful products. Consequently, consumption of natural resources and product disposal closely tracks economic performance.

Given that the market economy is the main means by which society interacts with nature’s primary resources, it is inevitable that intensive agriculture and fisheries as well as other extractive, manufacturing and commercial activities are flagged as major contributors to ecosystem degradation at all scales. However, to blame business and absolve its burgeoning and ever hungrier customer base is naïve.

What is clear is that, if commercial exploitation and consumption habits are close to the roots of contemporary problems, they are also close to potential solutions. Also, there is compelling evidence that more dependable profit stems from business models accounting for their impacts on nature and its services.

We live in a very different world to that of the Industrial Revolution, although the modern economy still embodies many of its anachronistic assumptions. There are far more people on this planet, and also a whole lot less “nature” to share between our spiralling numbers.

Lifestyles are vastly more resource-intensive, with industrialising nations rapidly adding not merely to population but also to mean-per-capita resource demand as they seek to catch up with the profligate habits of the already industrialised world.

We are also, at least in the “better-educated and media-savvy rich world”, vastly more environmentally literate. And we have vigilant non-governmental organisations (NGOs), an intrusive media serving many specialists’ interests, and, of course, the internet and all manner of social networking offering realtime, global-scale sharing of images, knowledge and commentary.

Corporate behaviour and influence, however far down extended supply chains, may be only a couple of mouseclicks away from public disclosure. There is nowhere to hide, nor any perspective of the “footprint” of business on the natural and human worlds that can safely be overlooked.

Business risks

All businesses depend upon flows of resources, finance, employees, customers and confidence. Through these avenues, all businesses ultimately rely upon the services provided by nature. There are essentially three types of businesses in terms of the directness of their connection with natural systems.

First, there are the businesses that depend directly on primary ecosystem resources. These include the water industry, organisations dependent upon harvested or grown food or forest products, and mining or quarrying enterprises. These businesses have often been in the vanguard of schemes to secure both sustainable primary resources and good corporate reputation as part of a wider societal “permission to operate”.

Stewardship schemes are one pragmatic business-driven approach for such organisations. Well established exemplars include the Forest Stewardship Council (FSC) and Marine Stewardship Council (MSC) schemes, respectively providing transparent mechanisms to assure forest-derived and fish-based products from source to retailer.

Kingfisher, whose UK retail brands include B&Q and Screwfix, was an instigator of FSC and remains committed to driving forward sustainable timber sourcing. Unilever is one of the world’s biggest consumers of fish, founding the MSC in cooperation with WWF in 1996 in recognition of the ethical and business sense of ensuring sustainable stocks.

Further examples include promotion of catchment management by water companies, such as United Utilities, which safeguards the quality and quantity of raw water as the primary resource of sustainable business.

The second tier of companies is “one step removed” from being dependent directly on primary ecosystem resources, but is still reliant on thriving ecosystems for continuing success.

Firms in this cluster include those providing tourist and activity services, such as angling, trekking, mountain biking and bird watching, as well as some drink and food companies.

Leaders in this category promote NGO or other initiatives to safeguard the waters, landscapes, ecology or other elements of habitat on which their customers depend to use their products.

This is also the terrain of cause-related marketing. An example of this is where, say, food and drink manufacturers and retailers promote tree-planting, educational or other environmental initiatives that resonate with the values of their primary customers.

The third business category is the largest, and many of this group may perceive themselves as operating in some “hyperspace” beyond nature. These include many in the computing and telecommunications industry, online retailers, financial services companies and pretty much every other enterprise in all sectors.

Leaders in this group include the Co-operative Group, which has long-standing ethical and environmental policies that seek to reduce its “footprint” on ecosystems and those dependent upon them.

These range from sourcing recycled paper in-house and from print suppliers, to investment in carbon-off set schemes that include forest planting or protection to restore habitat for wildlife and people, and a check list of schemes that its banking arm will not loan money to owing to those schemes’ unacceptable impacts on ecosystems and human rights.

From ecologically sound site management to seeking water- and carbon-neutrality in the design of infrastructure and supply chains, there is much that all businesses can do to assess and then self-beneficially address their impacts on ecosystems and their supportive services. After all, every enterprise has a metabolism that – whether realised or not – ultimately rests upon nature.

This includes more obvious factors such as consumption of water, food, fuel/energy, paper and timber-based furniture, but also more indirect dependencies such as the vulnerability of sites, supply chains and customers to flooding, adverse weather and other climate-impacted factors, resource scarcities or adverse publicity.

Corporate reputation among staff, customers, suppliers and investors, potentially influenced by disclosures about corporate sourcing, distribution, site management and supply-chain impacts on ecosystems, can also exert a major influence on the bottom line.

The economics of ecosystems

A French/German study in 2008 concluded that the (2005) worldwide economic value of pollination services provided by insects was €153 billion. If this sounds a little abstract for day-to-day business decisions, many other studies are also demonstrating the economic value of ecosystem services.

The Economics of Ecosystems and Biodiversity (TEEB), an international initiative, sought to do so in more pragmatic terms by drawing attention to the global economic benefits of ecosystem services, and the growing costs of biodiversity loss and the damage done to ecosystems.

Reporting in 2010, TEEB developed workable values to support practical action, drawing together expertise from the fi elds of science, economics and policy. Among a variety of interim reports was one specifically addressing the business community, TEEB for Business.

It proposed a set of seven steps businesses could take, starting with “identify the impacts and dependencies of your business on biodiversity and ecosystem services.” Subsequent steps include assessing business risks and opportunities, considering management, integration with wider corporate social responsibility initiatives, and engaging with stakeholders.

The seven TEEB measures have significant overlaps with steps proposed in my 2009 book, The Business of Biodiversity. My first step requires an organisation to accept that its business has fundamental dependencies on biodiversity and the services that it provides.

The steps then proceed to address audits of impact, rates of use of natural resources, risk analyses, using or creating appropriate stewardship schemes, exercising purchasing power to influence markets, inclusion in management systems, and embedding in corporate culture and strategy.

Prudent risk management

The approaches of both The Business of Biodiversity and TEEB are based on prudent risk-management. Businesses have vastly more risks to consider in an ever more concerned, digitally connected future.

Worries about resource security, the primary preoccupation of many of our first-tier companies noted earlier, remain pressing as we overwork our soils and oceans, over-abstract water and forest resources, and edge out functional and valued ecosystems with continued human sprawl.

The same considerations lie behind corporate engagement with the climate change agenda, another ecosystem service recently and suddenly entering the market.

Responses to climate-change issues include recognising a wide range of business risks that include pre-empting resource security, vulnerability to changing climate, corporate reputation, changing regulation and taxation, innovating to realise new opportunities, and so forth. Businesses thus already have a great deal of experience in responding to emerging issues.

This same agile engagement needs to be extended to corporate footprints on all ecosystem services, reflecting that the many benefits that ecosystems confer on human wellbeing are ultimately connected to business success.

Part of this is defensive and includes pre-empting issues such as resource security, potential future liabilities, and likely changes in regulation and the tax regime.

However, the greater emphasis should be on proactive realisation of business opportunities, including innovating into new markets, developing strong and trusted trading partnerships and brands, promoting confidence and loyalty among customers, motivation and retention of quality staff, and assuring investors that the company is here for the long term as a responsible player in society.

“Doing well by doing good” may be an overused phrase, but it is certainly apposite in this situation. The Prince of Wales recognises this as both a need and an opportunity. He used his invitation to address the European Parliament earlier this year to highlight the need to integrate fully into public and private sector decision-making the unbreakable economic and ecological links in energy, agricultural, water and industrial sectors.

Through deeper understanding and engagement with this reality, Prince Charles sees opportunities for the simultaneous building of economic and environmental resilience, noting that: “Otherwise, I fear, nature’s bank will go bust and no amount of quantitative easing will fix it.”

The advantages of being proactive are well known in the boardroom. Ecosystem services provide a framework for 360o risk management to reinforce business resilience through environmental and social responsibility. There are things that organisations can do today to gain a foothold in the longer-term future informed by ecosystem services (examples of the kinds of steps businesses can take are outlined below).

Examples of steps businesses can take to address ecosystem services
  • The dependency of the business on all ecosystem services should be explored at high level in the company.
  • Consider what this implies for business risk (scarcities, reputation, etc) across all service categories.
  • What product innovations, process changes and other business opportunities will reduce impacts on ecosystems and their services?
  • Consider whether stewardship schemes could be used (or developed) to address particular risks, or whether working with others in similar ways could advance a common agenda.
  • What other business alliances, for example working with NGOs, could also help address dependencies on ecosystem services?
  • How can your purchasing power be militated for changing supplier behaviour and hence your vulnerabilities along supply chains?
  • Consider how your leadership role could become a market differentiator.
  • Report transparently and accountably to develop your trustworthiness and promote your “brand”.
  • Embed ecosystem considerations into management systems and strategic planning right across the organisation; they are NOT peripheral issues!

Promoting corporate confidence

Businesses require strong signals to give them confidence. The signals from the UK government could not be clearer about embedding the ecosystem approach at the centre of decision making.

These signals include: the UK-wide National Ecosystem Assessment due out in May; Defra reconstituting itself under the Natural Value Programme (NVP) explicitly to put “the value and interdependencies of nature’s services at the heart of decision making”; and the development of a supplement to HM Treasury’s Green Book – its guide for central government, setting out a framework for the appraisal and evaluation of all policies, programmes and projects – on the internalisation of ecosystems thinking into decision making.

There will also shortly be a Natural Environment white paper, which will aim to advance the integration of ecosystem-based thinking across all policy areas.

In Wales, the Natural Environment Framework is doing a similar job to the NVP, while ecosystem services are also permeating the thinking of international bodies and national governments across the globe. These factors fundamentally change the decision-making terrain for businesses, including multinational enterprises.

Today, customers and investors deselect businesses that cannot give assurances about eliminating child labour, harmful chemicals and rainforest destruction from their practices, including in their supply chains. As wider awareness of nature’s services and their implications for people pervades societal consciousness, the impacts of corporate behaviour across all ecosystem services will come under the same spotlight.

Taking ecosystem services fully into account will be where the innovations, reputation gains and avoidance of future liabilities are to be found as we head into tomorrow’s economic markets.

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