Of Mice & Men: RI report from the World Forum on Natural Capital

At the end of his closing plenary speech on the first day of the first World Forum on Natural Capital (WFNC), Scotland’s First Minister Alex Salmond paid homage to a famous poem called To a Mouse, written in 1786 by the Scottish poet Robert Burns. The poem, which inspired the likes of naturalist John Muir (who was born about 50 miles from Edinburgh) and the novelist John Steinbeck, is essentially about the ‘unintended consequences’ of human economic activity (in this case a farmer disturbing a mouse nest whilst ploughing his field). It seemed a fitting way to link Scotland to the WFNC. Salmond went on to announce a £50m pound infusion into the newly formed Scottish Forum on Natural Capital to enhance and preserve the country’s natural assets. There was a diverse cross section of organizations represented at the conference (Responsible Investor was a media sponsor). NGO’s and consultants rubbed shoulders with academics. Ironically, there seemed to be a low representation among ‘capital’ attendees from insurance, fund management, the accounting and finance professions. Attendees at the two-day conference expressed hope that it would spur momentum in building a sustainable business model for the world’s economic future. The optimism was in stark contrast to news emerging while the conference was taking place: UK Prime Minister David Cameron allegedly remarked to aides to “cut the green crap” from energy regulation, while one speaker at the COP19 in Warsaw described the event as “depressing and a disgrace”. At the closing session on day one there was a stirring ‘call to arms’ by David Jones, CEO of Havas, the global advertising agency, and co-founder of the One Young World summit. He illustrated how the new power of social media has the potential to transform the landscape for companies with natural capital risk exposure, which he called the intersection of “social and natural capital”. He also said that companies are increasingly coming to the realization that they can be more profitable by “doing good”.Natural capital (NC) is a relatively recent term that has evolved over the past few years from the notion of Ecosystem Services. In fact, as became apparent at this conference, it is a concept that is still being debated, and one which means different things to various stakeholders. Dieter Helm, Professor of Energy Policy at the University of Oxford, and an advisor to the UK government, referred to it as a “slippery concept” in a plenary talk. In the corporate world up until now NC has not generally been assigned value. What may be especially relevant for investors, however, is the element of risk exposure due to degradation of NC, and how that may impact future corporate earnings and investment returns. What was traditionally viewed as an “externality” is now starting to be incorporated into business decisions; for example, utilizing risk-adjusted cost of capital measures to internalise or monetise NC. A real world example of how this might play out was provided by a speaker from SAB Miller. One of their emerging market brewery operations in an underdeveloped country was jeopardized because of threats to the water supply due to overgrazing by upstream livestock activity which lead to severe pollution issues. The company became involved and through encouraging more sustainable, less polluting practices was able to continue their brewery operations. Another example of NC benefits would include preserving or restoring coastal wetland areas to protect vital coastal infrastructure and facilities from storm or hurricane impacts. Controversy over the NC terminology became apparent right at the start of the conference, however. A small street protest was being held on the question of whether the NC concept should be debated and discussed at all. Following that was a social media attack on the #natcap13 conference Twitter feed by #notforsale; which did not help with the sharing of ideas and outputs from the proceedings. It did, however, highlight one area of debate in what appears to be two visions of how to incorporate NC into business strategy and behaviour. One involves attempting to develop metrics to assign monetary

value to natural assets, and the other takes a more risk-based approach as described above. Despite these differences, nearly 500 attendees came to the WFNC, which included four concurrent break out streams (between opening and closing plenaries) in the areas of finance, supply chains, primary industries, and the collaborative framework. Whilst it was sometimes difficult to differentiate between the streams or session headings due to the complex and interdisciplinary nature of NC, some lively debates and useful observations and ideas were produced. In one breakout session, the panel explored how natural capital accounting could help minimise environmental impacts whilst at the same time improving business decision making, by, for example, helping assess the environmental and related socio-economic risks of investing in certain areas, projects or operations. There were clear differences in opinion on how best to achieve that end. No universal standards exist, and many organizations (e.g. CDP, GRI) are developing parallel approaches to the problem.What came out time and again throughout the conference was the need for leadership and collaboration across sectors. Even without standardized approaches to NC, there are strong justifications to incorporate it into business decisions or to pursue NC accounting/ecosystem services valuations. These include enhancing brand value, evaluating long-term environmental risks, and finding new business opportunities along the corporate value/supply chain. The WFNC provided a powerful reminder how today’s externalities could become tomorrow’s financial costs, or even crises. The concept of NC is a complex one and there is a pressing need to simplify and enhance communication. It demands collaboration, leadership at the top and holistic thinking on the part of decision makers. The challenges and complexities should not be an excuse for inaction though when it comes to securing the future of the planet’s biodiversity, climate and ecosystems.
Peter Wiegand is a carbon finance professional and freelance writer