Sustainability now: Sustainability and value systems

REDD+ economics advisor of UNEP, Ivo Mulder, says that changes to our natural environment through activities like deforestation will affect many businesses in a number of ways - Reuters 

 In early October Ivo Mulder, a REDD+ economics advisor of UNEP, wrote an article titled ‘Valuing the Invaluable in Business’ where he elaborated on the difficulty of putting an economic value on our natural environment and links the reader to different kinds of tools with which businesses can prepare for the effects environmental challenges pose. 

Given the difficulty of applying financial values to nature, often the environment’s value is considered ‘0’ or ‘priceless’. Nevertheless, it is also commonly understood by many that given the way humanity is currently progressing there will be a negative impact on society and businesses at a certain point in time; real economic and financial impacts. 

The author describes different examples where unsustainable environmental conduct has already negatively affected the costs and revenues of businesses, such as the IOI Corporation and a Malaysian palm oil producer who faced a severe share price decrease linked with illegal deforestation in Indonesia. 

Such developments influence not only the company itself but everyone who has put money into it such as stock and bond holders as well as banks and other investors. 

“The takeaway message is that changes in our natural environment - deforestation, water scarcity and greenhouse gas emissions building up in our atmosphere - are real and if left unaddressed will affect many businesses in a vast multitude of ways. On the other hand, those who are well prepared and know how to navigate changes in consumer and investor preferences related to natural capital will be much better positioned to weather the storm,” the article states.

There are a number of tools out there which can guide and help businesses to evaluate their status and find customised solutions. Ivo Mulder mentions the “Natural Capital Coalition” and their protocol and sector guides, the “Natural Capital Declaration” or Bloomberg’s and NCD’s “Water Risk Tool”. “What these tools have in common is that they are Excel-based, free to download from the internet, focus exclusively on the financial impact of natural capital risks, and are customisable, meaning that anyone can override the assumptions in the model and add new companies,” asserts Mulder. 

Evaluating opportunities

Besides the direct influence of environmental challenges on the balance sheet, companies are advised to have a proactive look at their corporate conduct and assess in which way it needs natural and social resources to run profitably. 

Corporate leaders should in addition evaluate the opportunities arising from the changing world in developing businesses which as a basic understanding do not make things worse but are able to deal with natural and societal changes and further than that, create business models which improve the current situation our planet is in. 

They can reap business opportunities based on these challenges, which include resource scarcity, greenhouse gas emissions, deforestation, agriculture and land use, rising energy and food demand, and have profitable companies facilitating change in the right direction.

There are various companies which already understand these opportunities. In Sri Lanka for example, a renewable energy company which is focusing on biomass has in recent years built up a supply chain including more than 40,000 small farmers who grow Gliricidia, a sustainable, rapidly growing short rotation tree, within a triple fence around their land. Within a multitude of farmer trainings they were able to reach trusted and committed suppliers who were in turn reaping additional benefits such as being able to make organic fertiliser, pesticide and fungicide from the Gliricidia leaves and small branches which help them to save the Government’s subsidy for fertilisers. 

How to make this organic fertiliser is also taught in the same farmer training. With this out grower model the company was able to plant 60 million trees across the North of Sri Lanka. To produce biomass only the large branches of the trees are cut, the stem however remains and is used as carbon sink. With this business model, the company is able to make money by facilitating environmental protection (fewer chemicals used in agriculture), increasing forests, increasing farmers’ incomes and skills and facilitating renewable energy to the country. 

Earlier the opinion prevailed that companies were looking after jobs and profits and civil society was looking after society and environment. However this assumed often that companies were “excused” when they had a negative impact on both of the other two dimensions. 

We as a society cannot afford such behaviour anymore. The time is gone when there was enough forest to be cut down and the only desire was to build a skyscraper or highway. We are going to lose out in the end if we continue to think that development goes hand-in-hand with construction and “getting rid of nature and anything which is considered old and out-fashioned”. 

Green bonds

In Sri Lanka we look at the West and its “development” and in turn the West looks at Sri Lanka and its resources and still intact ecosystems. Yes, a society will always strive to develop, however we have to change the approach or we will end up in the same position the West now finds itself in – it might have the infrastructure we desire, however it faces a multitude of other issues which we have in common globally, and which are linked to  the natural environment. The world is changing and with it its many industries as we have understood them so far. 

“The market for green bonds is rapidly expanding with close to $ 700 billion of climate-aligned bonds outstanding in 2016. There are plans to issue the first green bond that would specifically finance commercially viable projects that have a positive effect on the sustainable landscape management,” wrote Mulder.

By June 2016, 579 companies had made pledges to remove forest destruction from their supply chain. This means that a company does not only need to show that it is not harming the environment to achieve finance from a green bond but it also needs to show the positive effect it has on the environment and this is one crucial game changer. Now it is not only about voluntary reporting. Now we talk about large-scale financing opportunities.

To measure one’s own impact there are a number of tools available such as the GRI guidelines, UN Global Compact, OECD guidelines, ISO standards, etc. where a company can measure its footprint. In addition, environmental and societal changes have to be considered in core management decisions depending on the nature of a company’s linkages with these dimensions. 

Where such tools offer guidance and evaluation systems, rankings and ratings are often flawed based on the research method they apply. When looking at Forbes’ most sustainable companies in 2016, we have 50 global companies ranked with a large car company leading the group. Where the assessment looked into waste management, resource efficiency, human resource management and so on it did not evaluate the very core activities of companies from the angle outlined above. 

Where for sure these companies invest significant time and resources in their sustainability activities their main business activities do not often reflect the sustainable development agenda. A company which needs large amounts of water in their factories does not only need to invest in small water projects in the country within CSR projects; it needs to ensure that the water it takes does not lead to shortages somewhere else. It needs to put systems into place that balance out the water demand of their production. Therefore, to look at the research method of such rankings is crucial.

Finally, as understood from Mulders’ article, whether being ranked or not, a company nowadays has to evaluate its impact as well as its dependence on the natural environment and society and set up its core business accordingly. A few years down the line no one is going to care about rankings anymore but rather about how to sustain their company in a world which is facing a multitude of challenges and there is no indication yet that these are going to reduce within societies and the natural environment.