FLP

Context – why is Natural Capital & Ecosystem Services becoming an issue?

FLP What is the issue?

• Many of the world’s ecosystems are in serious decline

• Continuing supply of critical ecosystem services like water purification, pollination and climate regulation are in jeopardy

• 6 interconnected challenges are of particular concern for business

Water scarcity

Nutrient overloading

Over- exploitation of oceans

Biodiversity loss

Habitat change

Climate change

SSources: WBCSD, Connecting the dots presentation & Ecosystem Services Training Manual, 2012 Millennium Ecosystem Assessment, 2005. Ecosystems and Human Well-being: Opportunities and Challenges for

Business and Industry

Millennium Ecosystem Assessment, 2005

FLP

Source: WBCSD, 2010

Businesses impact on ecosystems & ecosystem services

Businesses rely and depend on ecosystems and ecosystem services

Ecosystem change creates

business risks & opportunities

Why business cares about ecosystem services?

FLP What do businesses say about ES &

biodiversity?

2%

5%

23%

27%

42%

32%

4%

37%

9%

18%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Not important

Don't know

Somewhat important

Extremely important

Very important

2010 McKinsey&Co Survey 2012 NZ F&B Survey

11%

24%

27%

44%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Don’t know

Risks

Opportunities

Opportunities and Risks

Percentage of Respondents

Sources: Landcare Research 2012 survey of NZ F&B sector on environmental practices and market requirements.

FLP What is business saying?

“We understand that the presence of whio in a stream is a great indication of the health of that river, and if we can demonstrate that the whio are thriving downstream from our operations it says we’re doing a great job of looking after the environment.” Albert Brantley, CEO Genesis Energy “Our Sustainable Living Plan aims to double sales and halve the environmental impact of our products over the next 10 years.” Paul Polman, CEO Unilever

“We believe that the current economic model is no longer viable and

must give way to a new business paradigm,… … one that works with nature rather than against it” Jochen Zeitz, CEO, Puma Ltd

FLP Concepts

• Ecosystem Dependency: “Environmental conditions required for successful corporate performance” • e.g. agricultural industry is dependent on plant pollinator species such as

bees • Ecosystem Impact: “Company affects the quantity or quality of the

ecosystem service” • e.g. mining industry has an impact on ecosystems that exist on the land

occupied by extraction sites. • Ecosystem Priority: “those services on which the company has a high

dependence and/or impact” • e.g. the paper industry impacts on forests by procuring timber for their

products. • Drivers: “factors–natural or man-made–that cause changes in an ecosystem

and its ability to supply ecosystem services”. • e.g. demography, land use change

FLP

Piloting the ESR with NZ businesses

FLP ESR Steps

• XXXX

Outline strategies for minimizing risks & maximizing opportunities through internal changes, sector or stakeholder engagement, policy-maker engagement

5. Develop strategies

Identify & evaluate business risks & opportunities that might arise due to the trends in these priority ecosystem services

4. Identify business risks

& opportunities

Research & evaluate conditions & trends in the priority ecosystem services, & drivers of these trends

3. Analyze trends in priority services

Systematically evaluate the degree of a company’s dependence & impact on 20+ ecosystem services

2. Identify priority

ecosystem services

Choose boundary within which to conduct ESR: -Business Unit -Product -Market -Landholdings -Customers -Suppliers

1. Select the scope

FLP Participating NZ businesses

FLP General Process

Before

After

Step 1: Determine scope of the assessment • Company decided internally the scope

Step 2: Prioritise ecosystem services

• Workshop to identify ES impacts & dependencies • Involved company staff; External stakeholders invited by some companies • 5-9 ES were prioritised

Step 3: Assessment of conditions & trends

• Company staff collected info for each ES

Steps 4 & 5: Risks & opportunities & strategy • Workshop to

• Identify risks and opportunities and actions • Formulate strategy to address risks and opportunities

• Involved company staff

FLP The Surprise

Before

After

Wild caught pāua industry has many ES dependencies but few (or no) impacts

FLP The Surprise

Before

After

Involved a large & diverse number of external stakeholders

BUT Worked well as a way to engage in neutral and new

ways with this diverse group of stakeholders

FLP

Key Insights

• Excellent way to engage external stakeholders & internally

• Revealed new insights • Promoted robust discussions around ES risks &

opportunities even when little info available

The Fun Part: Working through the concepts

Scoping

Impacts & Dependencies

Measure & value

The Business Case & Elevator Spiel

Taking action

5. Develop strategies

4. Identify business risks

& opportunities

3. Analyze trends in priority services

2. Identify priority

ecosystem services

1. Select the scope

Mapping NCP to ESR

FLP

Determining the Assessment Scope

Aim: • To determine what aspect of the organisation

or organisation’s business to focus assessment

Scoping the Assessment

• Who to have in the room when choosing scope – Mix of people from different parts of the org – Senior mgt (CFO)

• Who to involve in the assessment – Deciding on material impacts & dependencies – Valuing impacts & dependencies – Exploring risks & opportunities – Deciding what to do next

Things to Consider

• May need to refine the scope along the way – Shrink or expand

• What level of resourcing may be needed • Is there senior mgt buy-in for the assessment • Articulating rationale for scope choice & why

it is important

Things to Consider

FLP Example Assessment Scopes

Product—Fonterra Brands Ltd focus Line: 6 pack of Fresh and Fruity strawberry yoghurt Geographic focus: Takahini plant, Strategic : Relatively large product line; scoped achievable Rationale: Relatively large product line and also scoped to be achievable (one factory, the ‘food factory’, within one site with separate energy and water metering; albeit many product lines produced in the ‘food factory’).

Corporate—Clutha Dam focus Facility: Clutha Dam Geographic focus: Clutha catchment Strategic: as even though dam recently re-consented there is increasing pressures around the use of water in the region. This could help with future processes for consenting or positioning for consenting. Rationale: Central Otago is starting to experience significant land use change with water availability and sedimentation is likely to be an issue. Possibility that consent will looked at again before it is due for re-consenting.

Corporate focus Sites: Factory & supply chain Geographic focus: factory + all areas where source ingredients Strategic: start up, underpin company ethics Rationale: Used to inform all aspects of company including ingredient sourcing, marketing, conservation actions, investments in development/support of growing of ingredients

FLP Example Assessment Scopes

Product focus Product: Wild caught Paua Geographic focus: New Zealand wide Strategic: wide spread fishery, closely managed fishery & believe there could be sustainability stories to capitalise upon. Rationale: Important fishery, increasing concerns over the sustainability of the fishery due to external drivers (climate change and ocean acidification), fits with sustainability strategy they are developing and marketing plan around their products

Corporate—URS focus Business unit: Water related projects division Geographic focus: Auckland, Waikato and Bay of Plenty (narrowed to Auckland) Strategic: large size of water business & attention being paid to water in NZ Rationale: wanted to look at how ES could impact on URS business. Looked at client projects initially but realised that clients likely to struggle with this a little now and really their biggest opportunity was too look at the ES risks for certain types of projects. Water projects were chosen as have many clients with Auckland, Waikato and Bay of Plenty having the most clients for them.

• Introduce yourselves, outline….

– What your company does

– What is your role

• Decide what to focus your assessment on – Use a challenge facing one of your table’s organisations to focus on

• Define the scope, thinking about

– What part of organisation/value chain to focus • Corporate (Company)

• Project (Company)

• Product (Customers/Suppliers)

– Who and what to focus on • Corporate, e.g. which business unit(s), product line, facility/site, landholdings

• Project, e.g. what site(s) and their locations, how far upstream and downstream of the project

• Product, e.g. which customers and suppliers (inputs) to consider in which geographic areas, how far upstream and downstream of the product

Exercise 1: Scoping a Natural Capital & ES Assessment

Business-as-usual Outlook to 2050 Understanding Pathway Impacts & Dependencies

Aim: • Understand what aspects of natural capital &

ecosystem services you need to focus on • To generate a robust discussion between

different people – Can be internal and/or external – Diversity of opinions/views is key

Impacts & Dependencies

Useful questions • Does the ES serve as an input or does it

enable/enhance conditions for successful company performance? – If yes, does this ES have cost-effective

substitutes?

Source: WRI, Ecosystem Services Review

Identifying Material Dependencies

Useful questions • Does the company affect the quantity &

quality of this ecosystem service? – If yes, is the impact negative or positive? – If yes, does the company’s impact limit or

enhance the ability of others to benefit from this ecosystem service?

• Is the company’s impact on this ES a large share of the total local or regional impact?

• Is the ES already in short supply relative to demand? • Could the company’s impact push the ES across a physical threshold

that leads to scarcity of the service or triggers a regulatory response?

Source: WRI, Ecosystem Services Review

Identifying Material Impacts

FLP Material ES

Before

After

FLP Material ES

Before

After

• Benefits of external stakeholders – Different perspectives bring different insights

• Language, terms & explanations need to resonate with the group

• Ensure all in the room have an opportunity to speak/engage

• Systematically consider all ecosystem services

Things to Consider

• Using the list of ecosystem services provided,

– Identify the impacts & dependencies of your chosen scope on each (or as many as you can do in time available) ecosystem services

• Use the questions below to help with the identification

– Choose which ecosystem services to value (either qualitatively, quantitatively, monetarily)

• Think about how material the impact/dependency is

Dependencies Impacts

Does the ES serve as an input or does it enable/enhance conditions for successful company performance? • If yes, does this ES have cost-effective substitutes?

Does the company affect the quantity & quality of this ecosystem service? • If yes, is the impact negative or positive? • If yes, does the company’s impact limit or enhance

the ability of others to benefit from this ecosystem service? • Is the company’s impact on this ES a large

share of the total local or regional impact? • Is the ES already in short supply relative to

demand? • Could the company’s impact push the ES

across a physical threshold that leads to scarcity of the service or triggers a regulatory response?

Exercise 2: Ecosystem service impacts & dependencies

Dependence on ecosystem services Ecosystem service 1. Does this ecosystem service serve

as an input or does it enable/enhance conditions for successful company performance? If ‘no’ skip to question 3

2. Does this ecosystem service have cost-effective substitutes?

Comments or supporting information

Templates to Use

Impacts on ecosystem services Ecosystem service

3. Does the company affect the quantity or quality of this ecosystem service? If ‘no’ skip to the next ecosystem service

4. Is the company’s impact positive or negative?(a)

5. Does the company’s impact limit or enhance the ability of others to benefit from this ecosystem service?

Comments or supporting information

Note: (a) Positive impact: The company increased the quantity or quality of this ecosystem service. Negative impact: The company decreased the quantity or quality of this ecosystem service.

Templates to Use

FLP

Business-as-usual Outlook to 2050 Measurement & Valuation

The Vision What next?

Selected the scope of the assessment • Chose organisational focus/stage of the value chain • What, who & where specifically • Checked the scope is strategic (& helps refine

pathways)

Identified your material ES • Based on impacts and dependencies

Valued material ES

Now….to take action • Identify business risks & opportunities • Develop strategies to address risks & opportunities

Where are we up to…..

FLP Operational Risks & Opportunities

Risks • Increased scarcity and cost of inputs

• Mussel farms depend on clean freshwater entering estuaries. In Tasman Bay cows in streams led to E.Coli pollution of streams

• Reduced output or productivity • Deforestation in Philippines has led to extensive siltation which has

reduced hydropower operating time • Disruption to business operations

• Deforesting steep highlands for sugar cane in Fiji has led to large floods which have damaged sugar refinery

Opportunities • Improving operational efficiencies & saving costs

• Increased drought Sydney Water’s investment in water saving shower heads has reduced water demand & reduced energy pumping costs

• Low impact industrial processes • Rotorua sewage treatment plant uses forests to remove nutrients

before entering waterways • Building awareness amongst employees/stakeholders

FLP Regulatory and Legal Risks & Opportunities

Public policies (e.g. taxes, subsidies & moratoria on extractive activities) Examples of laws that currently consider the value of ecosystems include:

• Waste Minimisation Act (2008)

• Regional Policy Statements

• National Policy Statement for Freshwater Management (2011; 2014)

• Crown Minerals Act (1997)

• NZ Emissions Trading Scheme

• Extraction moratoria • Logging bans to reduce erosion and flooding impacted timber production

• Lower quotas • If fish stocks fall below threshold, QMS reduces/bans take until stocks replenish

• Fines

• Crafar Farms fined for effluent discharge

• User Fees

• Due to water scarcity Mexico’s National Water Commission raised water charges 17-fold

• Permit denial

• McKenzie Basin dairy consent – water quality and aesthetic landscape impacts • Bunnings warehouse building siting – lost ecosystem services

Regulatory and Legal Risks & Opportunities

Regulatory and Legal Risks & Opportunities

• Permit or licence suspension • Coca-Cola, India permit was suspended due to impact on local freshwater levels &

quality

• Lawsuit • Crafar Farms were prosecuted multiple times for unlawful effluent discharge

• Formal licence to expand operations

• Mining companies allowed to expand operations if they offset loss of habitat impacts

• New products to meet new regulations • Taupo Beef – developed in response to N limits on Lake Taupo • Phosphorous-free detergent – response to nutrient pollution in waterways

• Opportunity to shape government policy

• Tourism industry lobbied to increase marine sanctuaries on Great Barrier Reef – banned fishing areas increased from 5 to 33%

FLP Reputational Risks & Opportunities

Risks • Relationships with their customers & other stakeholders.

• Meridian withdrew plans to dam Mokihinui River for hydropower – loss of habitat and species

• Affect a company’s brand, image, “goodwill” (e.g. image from media and NGOs) • McMillian Bloedel suffered reputational damage with Greenpeace started protesting

their clear cutting of forests. Scott Paper and Kimberly-Clark (UK) stopped purchasing from them causing a 5% lose in revenue

Opportunities • Implementing & communicating sustainable purchasing,

operating or investment practices to differentiate corporate brands • New Zealand Wine Company

FLP Market Risks & Opportunities

Risks

• Relate to product & service offerings, consumer preferences, and other market factors that affect corporate performance • Walmart – reduced resource intensity products • UK retails – low C foods

Opportunities

• Potential new revenue streams from

o Participating in emerging environmental markets (Lake Taupo Nutrient Market; New Zealand Emissions Trading Scheme)

o New products or services (e.g. Taupo beef; efficient irrigation systems)

o Markets for certified products (Marine Stewardship Council-certified seafood market doubled 2007-2008; carboNZero certified products/services)

o Company-owned or managed ecosystems

FLP Financing Risks & Opportunities

Risks

• Higher cost of capital • Banks increase risk rating for those operating in areas where water

limits are being implemented

• More rigorous lending criteria • Different lending rates for facilities on floodplain

Opportunities

• Increased investment by progressive lenders & socially responsible investment funds • Global investment banks increasingly looking at companies that

provide solutions for water supply, treatment and demand management

FLP Societal Risks & Opportunities

Risks • Reduced access for local communities to resources

• Health impacts in community (e.g. effects of air pollution)

Opportunities • Benefits related to improved natural capital/ecosystem services

(e.g., improved recreation access of a managed wetland or better swimming due to improvements in water quality/water flows)

FLP Risks & opportunities

Before

After

Risks & opportunities: • Wildfoods: Illegal and recreational fishing pressure • Climate regulation: affect on pH levels (affects shell formation, pāua

mortality); affects pāua food and habitat (kelp) • Erosion regulation: anecdotal correlation between erosion & stunted

growth • Recreation: important kiamoana & recreational catch • Spiritual/Ethical: important kiamoana & taonga (esp. for cultural events

e.g. tangi & hui) • Educational/inspirational: related to teaching

of kaitiaki

FLP Risks & opportunities

Before

After

Risks & opportunities: • Crops & livestock: irrigation-based farming is divisive issue • Capture fisheries & habitat: inhibit fish migration • Freshwater: increasing water demand has led to review of water

allocation; management of didymo (river flushing) • Erosion & natural hazard regulation: Contact has erosion mitigation

plan but erosion still a problem; Contact can mitigate floods to some extent (communication to local community)

• Recreation & eco-tourism: impact on lakes, river flows & access to land for recreation

• Ethical & spiritual: grow iwi relationships, e.g. mahinga kai programme; promote historical heritage

• Educational & inspirational: school education; hydro generation university courses; internships and holiday programmes

Internal changes Sector or stakeholder engagement

Policy-maker engagement

• Operations • Product strategy • Market strategy • Procurement

strategy • Land

management • Reporting • etc.

• Industry peer collaboration

• Cross-sector collaboration

• NGO collaboration

• Transactions with stakeholders

• etc.

• Tax incentives • Subsidy reforms • Protected areas • Zoning • etc.

Thinking about Actions

FLP Actions Taken

Before

After

Internal: • Use to embed sustainability within organisation • Develop strategic long/short-term positioning for key issues

Stakeholder: • Utilise to develop & maintain new stakeholder partnerships to

capitalise on new opportunities • Continue to build newly developed stakeholder relationships

FLP Other Actions

Communicating internally & externally • What, where & who to share with

• How best to communicate results

Making natural capital assessments part of how you do business

• Board & senior mgt support

• Appropriate internal systems

• Organisational culture change

– Internal champions

FLP

Developing the Business Case

Developing the Business Case

Business Issue

Operational Legal Reputational & Markets Financing Societal

5 key risks / opportunities for

businesses

Sources: WBCSD, Ecosystem Services Training Manual, 2012; Natural Capital Protocol

• Decide on the key points for the business case – Use the risks & opportunities to frame your business case

– Bullet point what you would say for your scope

• Write a 2 minute elevator speech – Pretend you are in the elevator and a Board member walks in

– You have 2 minutes to tell them • why you think the organisation should do a natural capital/ecosystem service

assessment

• It is your choice how you sell it (can be either be based on the assessment or potential benefits you could see)

Exercise 3: Writing a business case & elevator spiel