By making nature visible in business decisions through measuring and valuing it as a form of capital, businesses can not only contribute to its sustainable management but enjoy associated benefits such as competitive advantage, increased resilience, greater transparency, supply chain security and a deeper understanding of the risks to business continuity.

This is what we call the ‘natural capital’ approach, systematically assessing and accounting for nature in our business planning. It is increasingly being adopted by business and government globally.

The Sustainable Business Council is working with businesses here to understand their dependencies and impacts on Natural Capital and to provide them with the support and tools they need to measure and account for these dependencies and impacts in their business planning.

We would love to hear from you if you’re interested in participating.

Defining natural capital and its benefits

Natural capital is the stock of renewable and non-renewable natural resources (e.g., plants, animals, air, water, soils, minerals) from which people derive many different benefits, certainly it is the foundation of all economic productivity.

New Zealand is a nation of exporters most of which rely on natural resources and the brand that supports our export and tourism sectors. Our national sense of identity and wellbeing are closely linked to our natural environment. And our actions, individually and collectively can build or degrade natural capital, depending on how we use it.

Businesses not only depend on the world’s precious stock of natural capital assets, they can also impact them, and there are risks and opportunities involved in this dynamic.

The value New Zealand gets from natural capital:

• 13ofNewZealand’stop20exportcommoditiesdependuponit

• Theseexportsmakeup70%ofNewZealand’sexportearnings*

• AfoundationforNewZealand’sclean,green,safe,healthybrand

*Statistics New Zealand - 2013

Understanding and recognising the dependencies New Zealand’s key export earners and tourism operators have on the country’s natural capital is a first step to providing a secure and prosperous economic base in the future.

New Zealand’s “green credentials” have never been more important. China is now New Zealand’s largest export market for agricultural products and there is significant potential in India and Indonesia. A survey of consumer preferences in Asian markets (Saunders et al.2013)foundthatAsianconsumersplacemuchgreatervalueonthe environmental quality of their food products than consumers from, say, the United Kingdom. Other sectors of the economy also depend on natural capital. New Zealand’s attraction as a tourist destination depends strongly on healthy land, freshwater, and marine ecosystems.

New Zealanders have a strong connection to the environment and derive well-being from it in a range of ways. For many New Zealanders it is important to pass on a healthy environment not just to their children, but to their children’s children.

Valuing natural capital in business

SBC Valuing natural capital in business1

Naturalcapitalimpactsanddependencies:conceptualmodelforbusiness(Fig1.2fromtheNaturalCapitalProtocol)

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Moana New Zealand (formerly Aotearoa Fisheries)

Loss of kelp in the Marlborough Sounds is a serious threat to local pāua and other marine life which rely on the seaweedforfoodandhabitat.Potentiallyasmuchas50-70%ofkelphasdiedoffinsomeareasandoneofthemaincauses may be land-based sedimentation. This is one of several issues New Zealand’s largest Māori-owned fishing company discovered when it completed an ecosystem services review (ESR) of its pāua fishery. As a result of the ESR review, the company is working with the Department of Conservation, Crown research institutes and other primary industry businesses to address the loss of kelp in the area.

Aorere Catchment Project

This project, based in the Golden Bay area, focused on understanding water quality issues and their impact for wider catchment/farming sustainability. The work was sparked by aquaculture industry concerns following reduced harvest opportunities, linked to declining water quality. As a result, dairying businesses in the catchment developedon-farmenvironmentalplanswithover$1.6million invested in on-farm best management practices.

The project improved the ecological health of the river and coastal environment and created community cohesion, assisting dairy and marine farmers to coexist and maintain their livelihoods.

Contact Energy

Contact is one of New Zealand’s largest electricity generators and retailers. It undertook an ESR for its hydro generation operations on the Clutha River. Contact believes the ESR process has delivered fresh thinking and a ‘neutral lens’ which it has used to approach previously tricky conversations about the environmental effects of its operations. It has also led to increased engagement and a better mutual understanding with stakeholders in the area.

Examples – Business and EcosystemsBusiness benefits

The interdependency of our economic wellbeing, job creation and natural capital means how we measure, value and manage our natural capital has broad economic and social implications.

A natural capital approach for business broadens our understanding of how the goods and services provided by natural capital impacts on the goods we produce, our tourism industry, and our sense of identity.

Taking a natural capital approach can assist businesses to make better decisions by identifying risks and opportunities more effectively. Businesses can then develop strategies to protect and enhance the natural capital and ecosystem services that are important to business. By recognising natural capital and ecosystem services in business planning and investment, businesses stand to benefit in four ways:

• Reputation:Businessesthatcandemonstratetheirunderstandingand sustainable management of natural resources can enhance their reputation, brand and licence to operate. This in turn is a competitive advantage locally and internationally, as regulators and markets increase their expectations in response to resources limitations and climate change.

• Accesstocapital:Investmentriskprofilesarechangingtoreflecttheimportance of understanding dependencies and impacts on nature. It is increasingly a requirement for getting access to capital.

• Operational:Natureprovidesinputsandservicesrequiredforbusiness – water, timber, fuel, fibre and food, plus crop pollination and water purification. As ecosystem health declines, so does the availability of these critical inputs. Conversely, identifying opportunities that arise from dependencies and impacts can reduce operational costs.

• Regulatory:Regulationarounddifferentecosystemservicesmaywell increase costs by making consenting more difficult. Companies which understand their dependencies and impacts are likely to be able to minimise costs and delays in consenting, and avoid possible disruption to business through enforcement measures.

To better understand natural capital impacts, risks, dependencies and opportunities, businesses should consider:

• Mappingnaturalcapitalinputs,bothdirectandindirect,tounderstand risks, dependencies and opportunities

• Assessingthelikelihoodthatnaturalcapitalandecosystemservicesmay fail to meet the needs of the business in the future

• Understandingtheconsequencesofaneventwheretheflowofgoods and services from natural capital are interrupted

• Developingstrategiestomitigatetheconsequencesofdependenceon depleting natural capital

• Identifyingtheopportunitieswhicharisefromthebusiness’dependencies and impacts on natural capital.

For more on why a natural capital approach makes sense for businesses, see:

• TheNaturalCapitalProtocol'APrimerforBusiness’http://naturalcapitalcoalition.org/wp-content/uploads/2016/07/NCC_Primer_WEB_2016-07-08.pdf

• EY’s‘MakingNatureVisibleinDecisionMaking’–http://naturalcapitalcoalition.org/wp-content/uploads/2016/07/EY_Making-Nature-Visible-in-Decision-Making_July-2016.pdf

• NaturalCapitalBusinessHubhttp://naturalcapitalcoalition.org/hub/

• SustainableBusinessAustralia’s‘NaturalCapitalatRisk’documenthttp://www.sba.asn.au/sba/pdf/20141008-NaturalCapitalatRisk.pdf

• USDepartmentofCommerce’sNaturalCapitalwebsite-https://www.commerce.gov/naturalcapital/whyshouldbusinessescare

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Definitions – What does the jargon mean?

• Abioticservices: The benefits arising from fundamental geological processes (eg the supply of minerals, metals, oil and gas, geothermal heat, wind, tides and the annual seasons).

• Ecosystemhealth: The integrity and functioning of an ecosystem and its resilience to impacts. Rather like humans, ecosystems can be healthy and resilient, with their internal functions running smoothly so that they can withstand external pressures. But ecosystems can lose health through external impactssuchasfloods,fire,pollutionandland-useimpacts,making them vulnerable to irreversible change. The health of ecosystems determines their ability to deliver services that people value.

• Ecosystemservices: The most widely used definition of ecosystem services is from the Millenium Ecosystem Assessment(2005):“thebenefitspeopleobtainfromecosystems, commonly divided into four categories:

- Provisioning services: Material outputs from nature (eg seafood, crops, water, fibre, genetic material.

- Regulating services: Indirect benefits from nature generated through regulation of ecosystem processes (eg water filtration by wetlands, mitigation of climate through carbon sequestration, erosion control and protection from storm surges by vegetation, crop pollination by insects).

- Cultural services: Non-material benefits from nature (eg outdoor recreation, spiritual inspiration, mental health, education).

- Supporting services: Fundamental ecological processes (eg nutrient cycling, primary production, soil formation which underpin all other ecosystem services. These services - although very important in determining the quality and quantity of benefits provided by nature - are often difficult to measure. Moreover, because they are so fundamental, attempts to value supporting services alongside other ecosystem services can lead to double counting.

• Naturalcapital: The stock of renewable and non-renewable resources (eg plants, animals, air, water, soils, minerals) that combinetoyieldaflowofbenefitstopeople.Theseflowscanbe ecosystem services and abiotic services.

• NaturalCapitalAssessment: The process of measuring and valuing relevant (“material”) natural capital impacts and/or dependencies, using appropriate methods.

• NaturalCapitalApproach: The general approach of using a natural capital assessment to identify and value (in monetary or non-monetary terms) natural capital and associated ecosystem goods and services that can help integrate ecosystem-oriented management with economic decision-making and development.

• NaturalCapitalProtocol(NCP): A project of the Natural Capital CoalitionlaunchedinJuly2016.TheNCPisastandardisedframework to identify, measure and value direct and indirect impacts (positive and negative) and/or dependencies on natural capital. See http://naturalcapitalcoalition.org/protocol/

• Materiality:IntheNCP,animpactordependencyonnaturalcapital is material if consideration of its value, as part of the set of information used for decision making, has the potential to alter that decision.

• Valuation:IntheNCP,theprocessofestimatingtherelativeimportance, worth, or usefulness of natural capital to people (ortoabusiness),inaparticularcontext.Valuationmayinvolve qualitative, quantitative, or monetary approaches, or a combination of these.

SBC Valuing natural capital in business