How to measure your firm's biodiversity footprint

Biodiversity is the new carbon in environmental circles, but can you really measure, manage or cost it as easily as you can carbon?
David Burrows guardian.co.uk 10 Jan 11;

It was October 2006 when Nicholas Stern published his review on the economics of climate change for the government. At the time, top climate change economist professor Michael Grubb hailed the report, suggesting that it "finally closes a chasm that has existed for 15 years between the precautionary concerns of scientists, and the cost-benefit views of many economists". Four years on and many are pinning their hopes on the TEEB report having the same impact on biodiversity.

Dubbed the new carbon, biodiversity just had its own international year of recognition with the UN, culminating in the Convention on Biodiversity in Nagoya, Japan. The summit placed the issues in the spotlight but there remains a feeling that an obsession with carbon emissions has distracted businesses and policy makers from equally important environmental challenges, such as the health of the world's ecosystems.

It's easy to see why awareness, acceptance and action on climate change have eased their way into the boardroom more readily than biodiversity. Global policy may be stalling, but businesses understand the concept of carbon measurement and footprinting; there's also evidence emerging that cutting carbon brings financial benefits. A recent UK government report found some companies were investing £50k in carbon measurements and reporting, but saving £200k as a result. Not a bad return.

Carbon is relatively easy to measure, of course. Thanks to Lord Stern's report, policy makers were also able to put a price on not dealing with the issue. Regulation is now snowballing, at least on a regional and national scale, and the pressure on businesses to cut emissions continues to increase.

However, attention is now turning to biodiversity. Research and reports have emerged showing the grave state of the world's biodiversity. WWF's Living Planet Report, covering 2,500 species in almost 8,000 locations, found that we are using the resources of 1.5 planets every year. "That's a bit like spending £15,000 a year when you earn £10,000," says WWF UK's head of business and industry, Dax Lovegrove. In the UK it's closer to £27,500 – if everyone consumed at our rate we'd need 2.75 planets. For Lovegrove, these figures demonstrate why "biodiversity has to be part of the environmental equation for businesses nowadays".

Alongside WWF's analysis, other reports have pushed the biodiversity agenda firmly into the business spotlight, providing estimated values for the services provided by the natural world. The goal, as explained by TEEB – The Economics of Ecosystems and Biodiversity report – is to show just how dependent the economy is on the natural world.

Joshua Bishop, chief economist at the IUCN and business and enterprise coordinator for the study, says value is useful for translating a somewhat opaque environmental agenda [like biodiversity]. "It adds a dimension that people can relate to. After all, we live in a market economy and dollars and cents make it more accessible," he explains.
"Polar bears and penguins"

However, TEEB and WWF's Living Planet Report are global studies, with some national breakdowns. While biodiversity is being touted as a top environmental priority for UK Plc, many businesses are still confused about what it is they need to do. Some still see it as a bit "polar bears and penguins", says one consultant. When it comes to biodiversity protection there are none of the easy, bite-sized messages – such as "cutting carbon = cutting costs" – that finance directors and marketers so love.

Efforts to tackle biodiversity loss have one clear advantage over measures to address climate change: the local benefits of doing so are very clear. The business benefits, however, are less so. Unlike carbon, biodiversity does not have an intrinsic value and is hugely complicated to assess. Not every business will save four times as much as it spends on reporting carbon by cutting it, but the potential for savings – and the reputational benefits – are helping to make carbon reduction an increasingly attractive option.

Unilever recently carbon-footprinted 1,600 of its products in a bid to cut its overall footprint and inform consumer choice. Could it do the same for biodiversity? Could it calculate the biodiversity footprint of its products, or even its business, and report it? Could it calculate the savings from protecting biodiversity? The answer, to all three, is 'not really' – at least not as conclusively as it can for carbon.

But that does not mean businesses should forget about it, says Malcolm Preston, PricewaterhouseCoopers partner for sustainability and climate change. "Like the impact of the recession, there is simply no sector that will be immune to biodiversity and ecosystem loss," he observes. "Business needs to begin to draw the dots between natural resources, their supply chain, consumer demand and the future value of their business."

But he admits connecting those dots will not be easy. "If you are trading with India there is a book you can read about the tax implications. Biodiversity is very, very different. People want a solution in a box, but there isn't one," he says.
Assigning impacts

The complications begin with measurement. The main headache, says Dr David Vackar, a footprinting expert at Charles University in Prague, is how to allocate impacts on biodiversity to business. "Biodiversity loss is an outcome of aggregate human impacts, especially land conversion, land use changes, habitat fragmentation, unsustainable harvest, climate change and pollution, which are driven by increasing human population, increasing energy demand and consumption of meat and other goods," he explains. "To disentangle the impacts of particular sectors or even firms is challenging."

Currently, it's only possible to assign biodiversity impacts to business in a "limited way". Some are attempting, for example, to use land area appropriated by human activity or number of threatened species, but these can be assigned to businesses only to a limited extent. Indeed, Unilever senior vice president for sustainability and communications, Gavin Neath, admits that it is one of the most difficult areas with which the consumer goods giant has to deal. To get a grip on carbon, and water, is "fairly easy", he explains, but to do the same with biodiversity is "very difficult". "The general levels of understanding, and I include myself in that, are not as good as they should be," he admits.

For a company that sources 7.5 million tonnes' worth of raw products from around the world every year, the biodiversity impacts are vast and complex. Neath says there is no chance of the company neglecting biodiversity, but managing it is tricky. "When we look at large plantations, like our tea in Tanzania, then we tend to do really well, but that's the exception rather than the rule," he says. "Many of the solutions are very localised."

Unilever has just committed to sourcing all its agricultural raw materials from sustainable sources by 2020. To achieve that goal, "we'll need to get closer to our suppliers," says Neath.

Some companies are beginning to tread a similar path; they are realising they need to in order to prolong their own existence, as Paul Laird, corporate partnerships manager at the Earthwatch Institute, explains. "Companies like Cadbury and Starbucks are essentially reliant on one crop, grown in certain areas of the world where biodiversity and ecosystems are under threat," he observes. "With land at a premium, along with the investment they have made in those areas and farming communities, they're increasingly aware that they need to play the long game and ensure a sustainable supply beyond the next year or so in those areas."

The relationship between food business and biodiversity is often easier to comprehend: crops need soil, insects for pollination, water and so on. Indeed, research by PricewaterhouseCoopers found that risks related to biodiversity and loss of ecosystem services are already impacting businesses like farming, forestry and fishing. But there is also a warning for all the other sectors.

"Just because you don't have a first-hand touchpoint with nature doesn't mean you won't have a second or even third," says Malcolm Preston, Pw sustainability and climate change partner. "No sector remains untouched from the risks."
Lessons learned

There have been, to date, some positive lessons from integrating biodiversity into business, yet biodiversity concerns are generally not fully understood at an operational level. According to Pw's spring 2010 survey, just 18 of the world's largest 100 companies made any mention of biodiversity or ecosystems in their full annual report; six of these have measures in place to reduce their impacts, and only two identified it as a strategic issue.

"Corporate supply chain processes don't seem to have taken biodiversity into account to a great degree yet," admits Mark Line, executive chairman at sustainability consultancy Two Tomorrows. "However, many companies are looking at the issue strategically from a supply security point of view."

The past few months have seen the release of the UN's TEEB report, the biodiversity deal set out in Nagoya and a commitment by the World Bank to a five-year programme aimed at encouraging countries to value ecosystems in the same manner as GDP. Just before Christmas, a sister to the IPCC (Intergovernmental Panel on Climate Change) was also born. The Intergovernmental Platform on Biodiversity and Ecosystem Services (IPBES) will report on the state of global biodiversity but also help further promote the extent to which economies depend on healthy ecosystems.

This has all given the issue a shot in the arm. The latest instalment of the TEEB report, for instance, urged businesses to disclose how they are affected by environmental risks and changes to natural resources in their annual reports. More are expected to do so, even if developing a standardised means of measuring biodiversity impacts remains years away.
Red flags

While it might not yet be possible to measure biodiversity footprints to the levels achievable for carbon, it is possible to identify where the red flags might be. This wider perspective on footprinting could be the future, according to Best Foot Forward senior consultant Richard Sheane. Taking the idea of footprinting to scale is a big challenge for businesses, he says, so analysts are looking to streamline the process. "It's more simplified but it'll give an idea of the hotspots," he says.

Much of the business case for assessing biodiversity impacts lies in understanding the risks, including security of supply and reputational risk. Unlike carbon and water, where the impacts to the bottom line are often clear, biodiversity loss hits the bottom line in other ways – in many other ways, in fact. Take BP. The company is no doubt wishing it put biodiversity immediately after safety at the top of its corporate responsibility agenda; the fact it did not has increased costs, laid the company open to legal action, and potentially lost billions of dollars in future revenue.

As Tom Nevard, CEO at the farming scheme Conservation Grade, puts it: "If the wind had blown their oil slicks just slightly further west and it had damaged some of the Texas shore reserves, they'd be broke. So, paying attention to biodiversity these days for multinationals is not optional, it's a practical necessity."

Besides risk, CEOs are beginning to see opportunities: 59 per cent see biodiversity as more of an opportunity than a risk for their companies, according to a recent McKinsey survey. This positive outlook is in stark contrast to executives' views on climate change in late 2007, when only 29 per cent saw the issue as more of an opportunity than a threat.

The Nagoya summit gave leverage to the idea that businesses were coming to terms with biodiversity as a major issue – perhaps even faster than they had done with climate change. As BusinessGreen reported, arguably the most significant breakthough in Nagoya comes not from the new treaties, but the context in which they were negotiated. Observers said that progress in Nagoya was driven in large part by the realisation that ecosystems are essential to the global economy, and as such businesses played a key role in lobbying for more ambitious protection measures.

It sounds remarkably similar to Grubb's comments following the Stern report. In fact, many are hoping that Pavan Sukhdev, the Deutsche Bank economist leading TEEB, can do for biodiversity what Stern did for climate change, alongside Nagoya. The project has already put an economic value on the services provided by the natural world, such as water purification, pollination of crops and climate regulation: between $2 trillion and $5 trillion a year.

Putting a value on biodiversity is a complex process, and those involved in TEEB appear aware of its limitations. However, with the momentum gathering around the study as well as other initiatives, biodiversity is certainly set to remain in the spotlight. Though complicated to measure, to manage and to cost, there's a case building for business to take action.

"We worry about the more familiar issues such as climate change, water stress and pollution, but we tend to forget why," says Anthony Kleanthous, WWF UK senior policy adviser for sustainable business and economics. "We worry about them because they all threaten the ecosystems on which we depend for life's essentials, from food and medicines to timber and flood control.

"Measuring and managing our impacts on biodiversity may be harder than it is for greenhouse gases and water, but it is at least as important. The good news is that businesses are becoming increasingly aware of their responsibilities, and new collaborations between public, private and third sector organisations are working on solutions."

Indeed, 2010 may have been the International Year of Biodiversity, but it's set to remain in the spotlight for some time to come.