Making Corporate Ecosystem Valuation practical for the business sector – Valuation methods and their integration into decision-making




Project summary

Research Paper: Different approaches for corporate ecosystem valuation are available now. However, the applied valuation methodologies (market valuation, stated preference method, revealed preference methods) all have in common that they have been developed by the scientific community to value BES. As was noted by some authors, it is of no use to force existing valuation methods to adopt a business perspective because they have been developed with different purposes in mind, and can often not be integrated in business operations, or only with undue efforts. Instead, there is a need for tools that evolve out of existing tools that are used by the corporate sector to value risks for instance. Those methods need to be easy to use, verifiable, objective and the results need to be consistent, robust and includable into the corporate financial decision making tools. A normalized and usable methodology for corporate ecosystem valuation can further serve as a basis of new policies (e.g. taxation, mandatory reporting) and allows businesses to take better decisions.



Motivation, objectives and target groups

This paper focuses on the tools that are currently used to value BES and draws lessons from their application in different companies. It looks at ways they can be streamlined into business operations and identifies potential for improvement. The paper will yield a first overview of the practical implications of the integration of BES in corporate operations that future debates can build upon.



Activities

- Evaluation of existing ecosystem valuation studies and drawing lessons.



Project results

Only a few companies have undertaken ecosystem valuation exercises so far. The experiences and literature are therefore limited. Nonetheless it is possible to draw some early lessons from the available information. As corporate ecosystem valuation matures it is necessary to improve consistency and to standardize assumptions. Using various values for ecosystem benefits or to discount future values does not help to achieve credibility and comparability of the results. If however a general consensus can be reached other companies who do not want to conduct a valuation of their own are more likely to follow the lead. Still, it is not sensible to work only with proxy estimates, for many ecosystem services an adjustment to local conditions is imperative to account for the local benefits.
With regards to methodologies, benefit transfer seems to be the method of choice. This is not entirely surprising as the costs and requirements for benefit transfer seem to be comparably low. On the other hand, the method is not flawless as empirical evidence suggests and it would be welcome if more companies would conduct valuation studies of their own. Further, the contexts in which the case studies have been applied are often not business specific. Extension of quarries or value of forests or watersheds are questions that are relevant for public authorities as well and literature and case studies exist where similar valuation studies have already been implemented. To learn more about ecosystem valuation of companies and to enhance the inclusion in corporate processes more specific business cases, such as the choice of production technologies should be evaluated in the future.
In addition valuation should be supplemented by improved measurement of biodiversity and ecosystem impacts and benefits. The increased understanding of interdependencies should lead to increased awareness for ecosystems and valuation can be the final incentive to change a company’s strategy. For now, the conducted studies have mainly been first tests. Even as companies state that they will in the future include the results of similar studies in their decision making it will have to be seen what really happens. Economic valuation could be a new impetus for payments for ecosystem schemes such as the water company Vittel paying upstream farmers for reducing pollution. If this can be achieved economic valuation can be used to open a new source of conservation finance.



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