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The Corporate ESR: Guidelines for identifying business risks and opportunities

Ecosystems provide businesses with numerous benefits or "ecosystem services." Forests supply timber and wood fiber, purify water, regulate climate, and yield genetic resources. River systems provide freshwater, power, and recreation.

Coastal wetlands filter waste, mitigate floods, and serve as nurseries for commercial fisheries.

However, human activities are rapidly degrading these and other ecosystems. The Millennium Ecosystem Assessment — the largest audit ever conducted of the condition and trends in the world's ecosystems — found that ecosystems have declined more rapidly and extensively over the past 50 years than at any other comparable time in human history.

In fact, 15 of the 24 ecosystem services evaluated have degraded over the past half century. The assessment projected further declines over coming decades, particularly in light of population growth, economic expansion, and global climate change.

Left unchecked, this degradation could jeopardize future economic well-being, creating new winners and losers within the business community.

Ecosystem degradation is highly relevant to business because companies not only impact ecosystems and the services they provide but also depend on them. Ecosystem degradation, therefore, can pose a number of risks to corporate performance as well as create new business opportunities.

Types of risks and opportunities include:

Operational

  • Risks such as higher costs for freshwater due to scarcity, lower output for hydroelectric facilities due to siltation, or disruptions to coastal businesses due to flooding;
  • Opportunities such as increasing water-use efficiency or building an on-site wetland to circumvent the need for new water treatment infrastructure.

Regulatory and legal

  • Risks such as new fines, new user fees, government regulations, or lawsuits by local communities that lose ecosystem services due to corporate activities;
  • Opportunities such as engaging governments to develop policies and incentives to protect or restore ecosystems that provide services a company needs.

Reputational

  • Risks such as retail companies being targeted by nongovernmental organization campaigns for purchasing wood or paper from sensitive forests or banks facing similar protests due to investments that degrade pristine ecosystems;
  • Opportunities such as implementing and communicating sustainable purchasing, operating, or investment practices in order to differentiate corporate brands.

Market and product

  • Risks such as customers switching to other suppliers that offer products with lower ecosystem impacts or governments implementing new sustainable procurement policies;
  • Opportunities such as launching new products and services that reduce customer impacts on ecosystems, participating in emerging markets for carbon sequestration and watershed protection, capturing new revenue streams from company-owned natural assets, and offering eco-labeled wood, seafood, produce, and other products.

Financing

  • Risks such as banks implementing more rigorous lending requirements for corporate loans;
  • Opportunities such as banks offering more favorable loan terms or investors taking positions in companies supplying products and services that improve resource use efficiency or restore degraded ecosystems.

Unfortunately, companies often fail to make the connection between the health of ecosystems and the business bottom line. Many companies are not fully aware of the extent of their dependence and impact on ecosystems and the possible ramifications.

Likewise, environmental management systems and environmental due diligence tools are often not fully attuned to the risks and opportunities arising from the degradation and use of ecosystem services. For instance, many tools are more suited to handle "traditional" issues of pollution and natural resource consumption. Most focus on environmental impacts, not dependence. Furthermore, they typically focus on risks, not business opportunities.

As a result, companies may be caught unprepared or miss new sources of revenue associated with ecosystem change.

The Corporate Ecosystem Services Review (ESR) is designed to address these gaps. It consists of a structured methodology that helps managers proactively develop strategies to manage business risks and opportunities arising from their company’s dependence and impact on ecosystems.

It is a tool for strategy development, not just for environmental assessment. Businesses can either conduct an Ecosystem Services Review as a stand-alone process or integrate it into their existing environmental management systems. In both cases, the methodology can complement and augment the environmental due diligence tools companies already use.

The Ecosystem Services Review can provide value to businesses in industries that directly interact with ecosystems such as agriculture, beverages, water services, forestry, electricity, oil, gas, mining, and tourism.

It is also relevant to sectors such as general retail, healthcare, consulting, financial services, and others to the degree that their suppliers or customers interact directly with ecosystems. General retailers, for example, may face reputational or market risks if some of their suppliers are responsible for degrading ecosystems and the services they provide.

This publication describes the five steps for performing an Ecosystem Services Review. It provides an analytical framework, case examples, and helpful suggestions for each step.

It concludes by highlighting a number of resources managers can use when conducting an Ecosystem Services Review, including a "dependence and impact assessment" spreadsheet, scientific reports, economic valuation approaches, and other issue-specific tools.

As of 2012, an estimated 300 companies have used the Ecosystem Services Review. In addition, complementary tools and guidance now exist to help companies more fully assess business risks and opportunities emerging from ecosystem change. For example, in 2011 the WBCSD released the Guide to Corporate Ecosystem Valuation (CEV), which provides information on how to quantitatively, or in some cases monetarily, assess risks and opportunities related to ecosystem services. CEV can therefore be a logical next step after undertaking an ESR. The Economics of Ecosystems and Biodiversity (2010) highlighted new examples of the linkages between business and ecosystem services. The ESR remains a fundamental starting point for companies to assess business risks and opportunities related to ecosystem change.

Global degradation of ecosystems and the services they provide threatens to alter the landscape in which business operates. The Ecosystem Services Review is a proactive approach for companies to manage the risks and opportunities that are emerging. Furthermore, by helping companies make the connection between healthy ecosystems and the bottom line, it will encourage not only more sustainable business practices, but also business support for policies to protect and restore ecosystems.

WRI developed the ESR in collaboration with the Meridian Institute and the World Business Council for Sustainable Development (WBCSD). Five WBCSD member companies—Akzo Nobel, BC Hydro, Mondi, Rio Tinto, and Syngenta—road-tested the methodology, providing feedback and case examples. Since 2008, an estimated 300 companies have used the Ecosystem Services Review. Yves Rocher, Lafarge, and CEMEX have also contributed ESR case studies to demonstrate the experience and results of the method.

More information and resources are available from the WRI.

 

On February 8th, 2012, WRI and WBCSD launched ESR 2.0
View the webinar videos below

Webinar 1


Intro 1 James Griffiths


Methodology Eva Zabey


Mondi 1 Peter Gardiner


CEMEX Heloise Chardigny

Webinar 2


Intro 2 James Griffiths


Methodology Suzanne Ozment


Dow John DiMuro


Mondi 2 Peter Gardiner

     

Chinese: Full Review 3.74MB
English V2: Full Review 4.49MB
Spanish: Full Review 3.27MB
French: Full Review 1.37MB
Japanese: Full Review 1.03MB
Portuguese: Full Review 1.01MB
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