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Natural Capital Protocol: An Introduction to a next wave in Sustainability

BY IAN EDWARDS

On July 13, business leaders with a focus on the environment convened in London to sign the Natural Capital Protocol, a watershed agreement two years in development that seeks to, for the first time, provide businesses around the globe with standardized ways to measure and manage nature as a part of doing those businesses.

In essence, the protocol asks businesses to put a value on nature that they might not have done so before – with the long-held belief that nature is freely given or a common good and with the goal that it can be better conserved and even restored.

Marsh on Cape CodCertainly, communities on Cape Cod understand intrinsically the value of nature to local industry, tourism and culture, but this sets out explicit ways to evaluate nature as an asset for that enterprise. And, as a potential regional outcome, it might contribute to reduced exposure to rising seas, extreme weather or diminishing natural resources.

Think of water, soil, biodiversity and mountaintops as part of the vast resource complement from nature from which we extract our lifestyles, without (so far) giving it appropriate accounting.

The protocol is less about putting a price tag on a grain of sand at Ballston Beach or a Piping Plover nest, but rather sets standards to begin to account for nature in business – recognizing that for as much bounty as nature provides, it is a limited resource with some alarming scarcity.

Without such safeguards, nature can be exploited and lead to “overshoot” – the idea that our vast population of humans and its society uses nature at a rate faster than its ability to regenerate.

The idea of valuing Natural Capital has been around for a while, but only now is it getting the framework and credibility to be put into action at scale. There are a number of ways to value nature, with the Natural Capital Protocol just the latest strategy – albeit one supported by hundreds of businesses such as Dow Chemical Company, Nestle and Qantas. A promotional video gives a quick summary of endorsements.

Previously, a 2012 study by KPMG estimated that if companies had to pay for their own environmental bills caused by their operations, they would lose 41 cents for every $1 in earnings.  That is a hefty unpaid bill to the Bank of Nature. As another example, the Indian government, in August, approved a report that established a $1.7 trillion baseline value for its forests in the event they must be converted to construction or industrial purposes. That’s greater value than the GDP of 60% of the G20 countries forecast for 2016.

In 2014, the International Energy Agency estimated a cost of $44 trillion through 2050 to decarbonize the energy sector – like reducing fossil fuels and potentially leaving them in the ground as “so-called” stranded assets. As another valuation of nature, the World Wildlife Fund in its April 2015 report Reviving the Oceans Economy: $24 trillion for just the oceans.

 “If you are not already incorporating natural capital into your decision making you are very likely to be missing significant risks and opportunities for your business,” states a briefing document from the Natural Capital Coalition, which authored the protocol.

The framework suggests it works for operations, helping a participating business reduce its exposure to rising raw material costs and supply chain interruptions from, for example, extreme weather. It also promises to reduce regulatory and legal exposure, bonuses for reputation and branding, improved access to financing and an enhanced social contract with communities.

What is the value of forests in the Cape Cod National Seashore? What is the value of the lost fishery? In what ways would regional businesses operate differently if nature was a stakeholder in decision-making?

In what ways would regional businesses operate differently if nature was a stakeholder in decision-making?

“The Natural Capital Protocol does not start from the usual position that companies should be concerned about natural capital purely for the benefit of external stakeholders,” says Will Evison, Assistant Director, Sustainability and Climate Change at PwC in a statement.  “It starts with the view that maintaining and restoring natural capital is vital for business success – and managing it better can contribute significantly and positively to business performance.”

He adds: “The Natural Capital Protocol provides a blueprint for this new kind of leadership, with a vision of a world where business conserves and enhances the natural capital that safeguards thriving societies and prosperous economies.”

The central concept that nature should be a stakeholder in our strategic planning is one avenue where sustainability is headed, now that the crucial Paris Agreement has put an exclamation point on how we will manage emissions to forestall runaway climate change.

Over the next few months, The Cape Cod Center for Sustainability will be exploring “What’s next?” for sustainability, as both a reality and a strategy for communities and businesses to look ahead and, perhaps, make different choices. In the drive toward sustainability, we are overlooking some key pillars of a more comprehensive solution: reinvesting in Natural Capital but one.

We’ll have more on natural capital in future articles, along with other content related to strategies and innovations that leapfrog the current sustainability debate to an exciting future when the world is already made sustainable for current and future generations.