The Economics of Ecosystems and Biodiversity for Business
Most people have heard about climate change and the need to reduce greenhouse gas emissions and it is fast becoming part of normal business practice. Similarly, more people today are aware of the risks of biodiversity loss and the decline of ecosystem services. In short, the value of nature is changing, and business needs to change accordingly. There is increasing need for sustainable business models that conserve and restore ecosystems while meeting people’s needs ...
Most people have heard about climate change and the need to reduce greenhouse gas emissions and this is quickly becoming part of normal business practice. Similarly, more people today are aware of the risks of biodiversity loss and the decline of ecosystem services. In short, the value of nature is changing, and business needs to change accordingly. There is an increasing need for sustainable business models that conserve and restore ecosystems while meeting people’s needs1.
Biodiversity loss is increasingly recognized as a significant business liability, especially for companies characterized by direct impacts on ecosystems and biodiversity, e.g. mining, oil and gas, or infrastructure. Business managers are becoming aware of their dependence on biodiversity and ecosystem services as essential inputs to production, e.g. in agriculture, fisheries, forestry, and bio-technology industries. In other cases, business impacts on biodiversity may be indirect, through supply chains or influence on investment, production, distribution and marketing, e.g. retail distribution, banking, asset management, insurance, or business services. More and more entrepreneurs are setting up firms dedicated to selling ecosystem services and biodiversity-related products, e.g. eco-tourism, eco-agriculture, certified timber or bio-carbon offsets.
Increased awareness of issues and opportunities raises deeper questions about how to bring about the required shifts in business and policy frameworks, and how to address linked issues such as poverty reduction.
In response to this need, a study of The Economics of Ecosystems and Biodiversity (TEEB) was launched by the Government of Germany and the European Commission, in response to a proposal by the G8+5 Environment Ministers (at their meeting in Potsdam, Germany, in 2007) to develop a global study on the economics of biodiversity loss.
© Danny Green/Wild Wonders of Europe
TEEB is an independent study, led by Mr. Pavan Sukhdev, and hosted by the United Nations Environment Programme, with financial support from the European Commission, Germany, the Netherlands, Norway, Sweden and UK governments, as well as in-kind contributions from many public and private organizations. TEEB brings together expertise from all regions of the world in the fields of biodiversity science, economics, policy and business. Its aim is to assess the economic impacts of biodiversity loss, and to offer practical responses to ecosystem decline
The missing price tag
The basic premise underlying TEEB is a well-known issue in microeconomics, namely that markets cannot ensure the efficient use of resources for which prices are lacking2. Because many of the benefits of ecosystems and biodiversity are not reflected in the market prices of goods and services, these benefits tend to be neglected or undervalued in both public and private decision-making. This leads to actions that result in biodiversity loss, which in turn affects human well-being.
In May 2008, a TEEB interim report was released at the 9th Conference of the parties of the Convention on Biological Diversity (CBD), marking the conclusion of the first phase of TEEB. The interim report included several messages relevant to business, notably the significance (and advantages) of market-based approaches to biodiversity conservation, as well as the need to strengthen corporate accounting and reporting systems in order to reflect business impacts and dependence on biodiversity.
The second phase of TEEB is well underway and will deliver five major reports: a foundation report on the ecological and economic science of biodiversity loss, as well as four stand-alone reports targeting key end-user groups. The four latter reports aim to provide insights and advice tailored to the needs of national and international policy makers: local policy-makers and administrators; business; and citizens. In addition, TEEB briefing papers and other outputs have been, or will be, produced during the course of phase two.
The TEEB report for business will be released in mid-2010 and will address the fundamental question: What does an economic approach to biodiversity mean for business? The report will include contributions from several experts in leading companies, and can be seen not only as a report for business, but also a report by business on the economics of ecosystems and biodiversity.
The report addresses the following questions
• How is the business and biodiversity context changing?
• What are the impacts and dependencies of different business sectors on biodiversity and ecosystems?
• How can business measure and report its impacts and dependence on biodiversity?
• What are the risks of biodiversity loss to business and how can they be managed?
• What are the main business opportunities related to biodiversity and ecosystems and how can they be realized?
• How can we link the ‘mainstreaming’ of biodiversity and ecosystems by business with poverty reduction and sustainable development?
Implications for business and biodiversity
Business, biodiversity and the linkages between them are heavily influenced by consumer preferences, which are constantly evolving. TNS research, based on interviews of over 13,000 consumers, shows that consumers are more concerned about the environment today than five years ago: 82% of Latin American consumers are more concerned; 56% in Asia; 49% in USA and 48% in Europe3.
Consumer concerns about biodiversity per se are not well documented, but we can expect awareness and understanding to grow. As noted recently by IPSOS:
"Today, few consumers know what biodiversity is. The example of sustainable development, however, a concept that was little known among the general public for many years, shows that communication efforts can bear fruit over time. Even though biodiversity remains known almost exclusively among early adopters, it is a trend that is certain to gain traction in coming years”4.
All businesses benefit from biodiversity and ecosystem services, either directly or indirectly. Businesses that fail to assess their biodiversity and ecosystem impacts and dependencies carry undefined risks. Businesses that do not appreciate these linkages cannot effectively plan for change. On the other hand, companies that understand the risks of biodiversity loss, that establish operational models that are flexible and resilient to these pressures, and move quickly to seize new business opportunities, are likely to thrive.
For consumer-facing businesses in particular, there is a need to ensure that biodiversity is fully embedded in risk management systems. This may include:
• Ensuring that biodiversity-related consumer concerns are included on the corporate risk register.
• Assessing the significance of the risk, such as how it will impact brand value.
• Designing appropriate responses, such as modifying internal procurement or production procedures and influencing key players in the value chain to ensure that biodiversity impacts are minimised, and creating communications strategies that address customer concerns and educate consumers.
The proliferation of ecologically certified products is an indication of changing consumer preferences. For example, membership of the International Social and Environmental Accreditation and Labelling Alliance (ISEAL) has more than doubled in the last two years5.
Many labelling schemes arose in response to concerns about biodiversity loss, including the Forest Stewardship Council (FSC), Marine Stewardship Council (MSC) and Rainforest Alliance certified coffee, cocoa and tea. In addition to the increased number of eco-labelling schemes, total sales and market share of certified products are also growing. For example, between 2005 and 2007, sales of FSC labelled goods quadrupled6, while spending on ethical food and drink in general has increased more than threefold over the last decade, from GBP 1.9 billion in 1999 to over GBP 6 billion in 20087.
Ethics in business and consumer behaviour has to be more than skin deep if we are going to have a sustainable future in both developed and developing world contexts. One recent attempt to interpret the available forecasts and to articulate a general strategy for business to contribute to a more sustainable future is the Vision 2050 project, sponsored by the World Business Council for Sustainable Development (WBCSD).
Not all dolphins are so free to play like this pair of adult bottle-nosed dolphins breaching at Moray Firth, near Inverness, Scotland. A plethora of these intelligent mammals ends up as a consequence of easily avoidable by-catch.
© Laurie Campell/Wild Wonders of Europe
According to Vision 2050, more than half the world’s population is projected to live under conditions of severe water stress by 2025, while a larger proportion of the world’s water use will be for irrigation. Simply meeting the demand for food by 9 billion people will require an increase in average global crop yields of 2% a year or more above recent historical levels. WBCSD argues that economic growth must be "decoupled from ecosystem destruction and material consumption, and re-coupled to sustainable economic development and meeting changing needs”. The challenge is to ensure that such ‘de-coupling’ does not simply mean the de-localization of adverse impacts to distant production sites, but rather real improvements in the efficiency of energy and materials use. For instance, how to meet rising demand for animal protein without turning forests into pasture and feed crops? How to satisfy demand for mobility without turning landscapes into motorways and car parks?
In the more sustainable future envisaged by WBCSD, "prices reflect true value (costs and benefits), both social and ecological, and reward systems recognize sustainable behaviour.
”In their efforts to plan and prepare for these and other potential changes, and thus contribute to a more sustainable future, businesses need to cultivate flexibility and adaptive capacity. As noted by WBCSD: "the goal of resilience – the ability to withstand shocks and quickly recover – may become more pressing than the goal of sustainability.”
In summary, Vision 2050 identifies five major changes required to ensure a sustainable future:
- Business and society must recognize the constraints and embrace the opportunities of a world in which 9 billion people can live well but within the limits of the planet;
- Redefine success and progress at national, corporate and individual levels;
- Generate more value from scarce resources by increasing bio-productivity;
- Develop and deploy solutions that lower the ecological impacts of economic activity, while maintaining quality of life in developed countries; and
- Vastly improve the quality of life in the developing world, without increasing ecological impacts to unacceptable levels.
At the end of the day we are all in this together. Governments have an important role to play in creating this paradigm shift, but as so often, it is business that can and will champion change. Informed decision-making is central to this. The TEEB report for Business will set out the economic case for incorporating biodiversity and ecosystem services in business decisions and identify a range of economic tools to help businesses do so. It seeks to offer practical guidance on how to measure and manage the risks of biodiversity and ecosystem losses and explores innovative economic tools for making production processes compatible with the conservation of biodiversity and ecosystems.
The report aims to help business leaders identify and grasp new market opportunities that will arise in a world that is increasingly taking action to stop further losses in biodiversity and ecosystem. It also provides business managers with the tools to inform themselves and others about the wider impacts of their decisions, in terms of financial, human as well as natural capital. In short, the report is intended to help business make the transition to a ‘green’ economy.
The TEEB report for Business will be released on 13th of July 2010 at the 1st Global Business of Biodiversity Symposium in London. The final results of TEEB will be presented in October 2010 at the CBD COP10 meeting in Nagoya, Japan.
1 Millennium Ecosystem Assessment (2005) Ecosystems and human well-being: Opportunities and challenges for business and industry. Island Press, Washington D.C. Printed on Charisma Silk from 100 % recovered paper – a product of Steinbeis Papier Glückstadt GmbH & Co. KG
2 TEEB – The Economics of Ecosystems and Biodiversity: The Ecological and Economic Foundations (2009), Chapter 2, European
Commission, Brussels. URL: http://teebweb.org (last access: October 9, 2009)
3 TNS (2008), Global Shades of Green. URL: http://www.tns-us.com/greenlife/ (last access October 9, 2009)
4 IPSOS Marketing (2009) Biodiversity, an emerging trend. URL: http://www.ethicalbiotrade.org/dl/ENG-UEBT-IPSOS-COMMUNIQUE-PRESSE-30avril2009fr.pdf (last access October 9, 2009)
5 ISEAL Alliance (2009), pers. comm.
6 Forest Stewardship Council (2008), Facts and Figures on FSC growth and markets. URL: http://www.fsc.org/fileadmin/web-data/public/document_center/powerpoints_graphs/facts_figures/2008-01-01_FSC_market_info_pack_-_FINAL.pdf (last access January 9,2009)
7 The Co-operative Bank and the Ethical Consumer Research Association (2008), Ten Years of Ethical Consumerism: 1999-2008.
URL: http://www.ethicalconsumer.org/Portals/0/Downloads/ETHICAL%20CONSUMER%20REPORT.pdf (last access October 9, 2009)
by Dr. Josh Bishop, Chief Economist (IUCN) and Coordinator of the TEEB for Business report