Mainstreaming ecosystem considerations into business is becoming increasingly important in order to deal with the challenges of a resource-constrained world. Developed by the World Business Council for Sustainable Development, the Guide to Corporate Ecosystem Valuation aims to help businesses adapt their current accounting and finance systems to reflect the full value of the ecosystems they impact and depend on.

IngulaJPG

Eskom

“Biodiversity loss and ecosystem degradation are continuing to escalate, thereby putting business at risk, but if managed properly, can be transformed into opportunities,” says Bjorn Stigson, president of the World Business Council for Sustainable Development (WBCSD).

Stigson warned companies they must anticipate that ecosystem valuation will be more consistently incorporated into public policies, regulations and political decisions. And this will put strong demands on businesses to measure and report their actions to conserve, as well as sustainably use and share, the benefits of ecosystems and biodiversity. Such values will be increasingly considered by the finance sector and business-to-business customers as they assess the related risks and opportunities of investments and supply chains.

In response to these challenges WBCSD launched the Guide to Corporate Ecosystem Valuation (CEV) in April 2011. Described as an innovative, first of its kind framework, CEV enables companies to consider actual benefits and value of the ecosystem services they depend upon and impact, giving them new information and insights to include in business planning and financial analysis. It is claimed that this will support improved business decision-making by creating more alignment between the financial, ecological and societal objectives of companies.

“I believe it will become one of WBCSD’s flagship tools,” Stigson says. “I also believe it will help companies proactively respond to the changing expectation of key stakeholders – including communities, regulators, shareholders, NGOs and the media. I encourage all businesses, large and small, to use this guide and integrate ecosystem values in their decision-making.”

A flagship tool

The CEV allows business to account for the full value of ecosystem impacts and inputs. This includes benefits of assets and costs associated with ecosystem loss, which has a more direct link to a business’ core operations, supply chain and financial bottom line.

The ability to factor ecosystem values into business decision-making is becoming an ever-more pressing need because:

• Increasing evidence demonstrates that ongoing ecosystem degradation has a material impact on companies – undermining performance, profits, their licence to operate and access to new markets.

• New opportunities are emerging that are linked in some way to restoring and managing ecosystems. For example, according to WBCSD’s Vision 2050 project, sustainability-related global business opportunities in natural resources may be in the order of US$ 2-6 trillion per annum by 2050.

• Communities, NGOs, customers, consumers and shareholders are becoming increasingly conscious of the interrelationship between business operations and the state of ecosystems, and are demanding that these issues are addressed, reported and accounted for.

• Meanwhile, in many parts of the world, the regulatory and legal requirements for companies to minimise and mitigate their ecosystem impacts, and to fully compensate any damages caused, are becoming more stringent.

Understanding ecosystem impacts and dependencies is of key importance to companies and, according to WBCSD, CEV offers a value-based lens through which associated environmental, social, economic and financial issues can be quantified, and the complex trade-offs between them compared.

Developed through an 18-month process of close collaboration with businesses and four partner organisations (the Environmental Resources Management, International Union for Conservation of Nature, PricewaterhouseCoopers and the World Resources Institute), the CEV is reported to provide clarity, consistency and guidance in approaches and techniques. It puts into practice a key report released in October 2010 by the G8+5 Environment Ministers. Called the Economics of Ecosystems and Biodiversity, the report urged companies to support sustainable use and management of biodiversity as an integral part of their business plans.

However, as WBCSD points out, businesses cannot manage what they don’t measure, and CEV allows them to value their ecosystem impacts, use and management.

Fourteen WBCSD member companies road-tested the CEV guide and were able to produce key examples of the opportunities and risks associated with ecosystems. These included:

• South African utility Eskom which evaluated the cultural services associated with tourism at a conservation area associated with the Ingula pumped storage scheme.

• Portuguese utility, Energias de Portugal, which assessed financial and societal costs and benefits of maintaining higher water levels in the canals and reservoirs associated with several of its hydropower facilities.

What is in the CEV guide?

The guide is divided into two parts. Part 1 ascertains if you need to undertake a CEV through a set of screening questions, plus it also answers some of the queries businesses might raise. Such as what it covers, how they might benefit from using the process, and what techniques and information are used.

Part 2 focuses on how to conduct a CEV and outlines a five-stage process:

1. Scoping: This stage helps companies identify specific business goals and an appropriate analytical context for CEV. This stage also facilitates the preparation of terms of reference for ecosystem valuation and helps build a strong internal case for any CEV project to be undertaken.

2. Planning: In this stage, the guide explains how to elaborate a plan for the implementation of ecosystem valuation. This includes determining the internal and external resources required to conduct a CEV and developing a suitable timeline.

3. Valuation: The guide identifies nine steps that are typically followed when undertaking ecosystem valuation, and describes each step to help companies conduct such valuations, or assess valuations they have previously commissioned. This stage has been developed in line with a typical Environmental and Social Impact Assessment (ESIA) process. However, CEV can readily link with many other existing company processes and analytical techniques.

4. Application: The guide provides advice on how companies can use and communicate their ecosystem valuation results in order to influence internal and external change.

5. Embedding: In the final stage, the guide gives suggestions on how to embed the CEV approach within existing company processes and procedures which address environmental issues.

WBCSD says that the guide is designed to be accessible to most business people but will require input from an environmental economist. Costs related to carrying out the CEV ranged from US$30,000-100,000 for the road-testers, and involved teams of three to eight people working part time over a year.

Many of the road testers came up with monetary results but this does not mean it is the preferred format of results, as opposed to quantitative or qualitative assessments. Many of the road testers were testing out the methodology and wanted to go through the full valuation. The guide tries to stress that it is not always necessary to carry out a monetary valuation, and it entirely depends on whether this information will be appropriate to help decision-making or not.

Monetary studies are typically more resource intensive, but with the development of benefit transfer approaches, need not be. WBCSD says it is important to make sure it is necessary or likely to improve decision-making by determining monetary values before embarking down that route. It may be that it is best to be selective in terms of what is monetised, as long as the other impacts are identified and noted.

Utilising results

The 14 companies have been using the results from their road test pilots in a number of ways. For example, EDP sees their results as being useful for future renegotiations of mandatory financial securities as required under the EU Environment Liability Directive. The utility is also considering converting the approach and methodology into a training kit for internal use linked to environmental management systems and enhanced stakeholder dialogue.

“Applying the guide will allow EDP to gain a better understanding of risks involved and spotlight new opportunities,” said Antonio Mexia, chief executive officer of EDP.

“Business and ecosystems are inextricably linked,” says James Griffiths, managing director for ecosystems, water and sustainable forest products industry at WBCSD. “Simply put, companies that don’t know their ecosystem impact place their businesses at greater risk and miss out on potential opportunities.

“Valuing these impacts and dependencies helps companies make better decisions. In addition CEV allows business to become a bigger part of the solution to biodiversity loss and ecosystem degradation,” he adds, “rather than just part of the problem.”

The World Business Council for Sustainable Development is a global coalition of more than 200 companies from 35 countries, representing 20 major industrial sectors. Its mission is to be a catalyst for innovation and sustainable growth in a world where resources are increasingly limited. The council provides a platform for companies to share experiences and best practices on sustainable development issues and benefits from a network of 60 national and regional business councils and partner organisations, a majority of which are based in developing countries.

For more information see The Guide to Corporate Ecosystem Valuation: A framework for improving corporate decision-making at www.wbcsd.org



Road testing the CEV

Energias de Portugal:
Electrical utility EDP”™s business strategy supports the increase of clean energy, mainly through increased wind and hydropower generation capacity. Consequently, EDP has committed to reducing CO2 emissions by 70% by 2020 against 2008 levels.
As part of the company”™s efforts to incorporate ecosystems into decision-making, it road tested the CEV guide during 2009-2010 with support from the WBCSD. The study considered private and social costs and benefits generated in a 7200ha watershed managed for hydropower generation.
In Portugal, some early-20th century hydropower facilities were built in areas classified afterwards as protected for nature conservation. The system selected as a case study is located inside the Natural Park of Serra da Estrela. Built between 1923 and 2003, it comprises nine reservoirs and six hydropower plants with 80.3MW of installed capacity. The six stations are connected through several open air water canals and produce around 239MWh annually, 87% of which are certified by a European Renewable Energy Certificate System.
EDP is responsible for the management of the hydropower system”™s reservoirs and canals. However the water retained is also used for agriculture and water consumption. In recent years, EDP has received an increasing number of requests from the Natural Park and local authorities to minimise some known biodiversity impacts of this infrastructure. Additionally, agreement has been reached about the appropriate water level in the reservoirs for recreational purposes.
EDP was interested in understanding the overall costs and benefits provided by the watershed, under the current goal oriented management, so that future decisions about hydropower system operation could be better supported by the knowledge gained with the present case study.
The study was aligned with the hydro system”™s EU Eco-Management and Audit Scheme, through which the company continually strives to improve its environmental performance and stakeholder engagement.

Approach and application
EDP worked in partnership with research teams from Portuguese Universities which had expertise in biodiversity conservation, ecosystem management and environmental economics.
The study includes calculating the Total Economic Value (TEV) of the watershed for a baseline scenario (current use), considering a time horizon of 20 years (end of the concession period for power generation). In estimating the TEV, hydropower facility dismantlement was defined as the alternative scenario.
An Ecosystem Service Review (ESR) was conducted to identify the main ecosystem services being provided by the watershed. The inventory was supported by literature review, expert judgment and field data collection. Information gathered was included in a Geographical Information System (GIS) which allowed mapping of species and habitats with conservation concerns, along with the dominant land uses. To complement the available data a one-day participatory workshop was held with various stakeholders.
The results clearly indicated that power generation is the most important service provided by the watershed. However, EDP warns that the results need to be regarded with caution since the work is still in progress and further refinements might be necessary.
In summary, EDP believes that the valuation results will be useful for future renegotiations of mandatory financial securities, whilst the approach and methodology are being converted into a training kit for internal use. The utility also plans to link the CEV with its European Eco Management Audit Scheme (EMAS). EMAS requires a communication plan with the public and the CEV has helped reinforce this. New market advantages are also being considered as the use of this approach demonstrates to potential RECS buyers the overall benefits of the water system in the region, beyond CO2 emissions avoidance.

Eskom
Eskom is a state owned utility that generates approximately 95% of the electricity used in South Africa, and approximately 45% of the electricity used in Africa. Due to the nature and extent of its operations, Eskom has an impact on the environment, requiring a systematic approach to environmental management. It was this commitment that led to the utility”™s involvement as a road tester for WBCSD.
The Ingula pumped storage scheme is located in the Drakensberg Mountains of South Africa. The total conservation area that was procured around the Ingula pumped storage scheme measures some 8,000 ha. Such a large conservation area (from a geographical perspective) was necessary as this area contributes directly to the water catchment area feeding the relevant dams on site, as well as sustaining grasslands – the essential habitat for some of the critically endangered bird species, such as the white-winged fluff tail.
The initial objective of the study was to obtain a better understanding of ecosystem services (in particular related to water) and the value that water has within Eskom”™s operational environment. However, this objective was changed at a late stage in the process to consider the recreational services of the site, specifically ecotourism (birding). This was largely due to Eskom”™s decision to investigate the opportunity to have the larger Ingula conservation area declared a nature reserve.
The Ingula site underwent an Environmental Impact Assessment (EIA) as a prerequisite for the authorisation of the project and so this data was available for use. A questionnaire was also developed targeting the birding community in terms of their willingness to pay and the distance they would travel to see certain bird species found on site.
Eskom saw the potential to sustain and enhance its revenues by creating an additional revenue stream and local jobs to manage the conservation area. However, the results from the CEV were limited and could be improved in the future. Indeed, Eskom intends to carry out a more detailed and full valuation of the Ingula site, as well as one of its coal-fired power stations that is currently being built, to do a comparative analysis of the two types of technologies and their associated impact on ecosystem services within their respective environments.
In conclusion Eskom believes that the guide has made concrete steps towards valuing ecosystem services, which is of particular importance within a developing economy such as South Africa. Eskom is confident that the CEV guide has provided a systematical approach to considering opportunities outside of normal business operations – for the benefit of the local community and society.