The Economics of Ecosystems and Biodiversity in Business and Enterprise

Joshua Bishop

• Publisher: Routledge
• Year: 2013
• eBook ISBN: 9781136497124
• Edition: 1
• Topic: Biological Sciences
• Subtopic: Ecology
• Index: Biological Sciences

This book is a product of the TEEB study (The Economics of Ecosystems and Biodiversity). It provides important evidence of growing corporate concern about biodiversity loss and offers examples of how leading companies are taking action to conserve biodiversity and to restore ecosystems.

This book reviews indicators and drivers of biodiversity loss and ecosystem decline, and shows how these present both risks and opportunities to all businesses. It examines the changing preferences of consumers for nature-friendly products and services, and offers examples of how companies are responding. The book also describes recent initiatives to enable businesses to measure, value and report their impacts and dependencies on biodiversity and ecosystem services.

The authors review a range of practical tools to manage biodiversity risks in business, with examples of how companies are using these tools to reduce costs, protect their brands and deliver real business value. The book also explores the emergence of new business models that deliver biodiversity benefits and ecosystem services on a commercial basis, the policy enabling frameworks needed to stimulate investment and entrepreneurship to realize such opportunities, and the obstacles that must be overcome.

The book further examines how businesses can align their actions in relation to biodiversity and ecosystem services with other corporate responsibility initiatives, including community engagement and poverty reduction. Finally, the book concludes with a summary and recommendations for action.

Chapter 1

Introduction to Biodiversity
and Ecosystems for Business

Editors

Joshua Bishop (IUCN), William Evison (PricewaterhouseCoopers)

Contributing author

Olivia White (PricewaterhouseCoopers)

Contents

Key messages
1.1	Background to this book
1.2	Approach, structure and contents
	1.2.1	Definitions
	1.2.2	Assumptions
	1.2.3	Methodology
	1.2.4	Objectives and key questions
	1.2.5	Audience
1.3	Biodiversity and ecosystems in a changing world
	1.3.1	Perceptions of business leaders on biodiversity and ecosystems
	1.3.2	The emerging business environment: What trends matter?
	1.3.3	Linkages between trends and their relation to business and biodiversity
	1.3.4	Changing consumer preferences: Implications for business and biodiversity
1.4	From major trends to business values
Acknowledgements
Notes
References

Key messages

The world is changing in ways that affect the value of biodiversity and ecosystem services to business. The value of biodiversity and ecosystem services (BES) is a function of population growth and urbanization, economic growth and ecosystem decline, changing politics and environmental policy, and developments in information and technology.

Biodiversity loss and ecosystem decline cannot be considered in isolation from other trends. The continuing loss of biodiversity and associated decline in ecosystem services is driven by growing and shifting markets, resource exploitation and climate change, among other factors. Equally, the loss of BES contributes to many of these other trends, implying the need for an integrated business response.

Business risks and opportunities associated with biodiversity and ecosystem services are growing. Given the ongoing decline of BES and the interaction between biodiversity loss, decline in ecosystem services and other major trends, business can expect both the associated risks and opportunities to increase over time.

There will be increasing pressure on (and more restricted access to) natural resources. Growing market demand for natural resources combined with increasing public concerns about environmental quality point towards increasing competition and more restricted access to natural resources on both land and sea.

Consumers increasingly consider biodiversity and ecosystems in their purchasing decisions. Consumer understanding and expectations of how products and companies relate to BES are becoming more sophisticated. Consumer-facing businesses, in particular, but also their suppliers, may need to re-examine how they manage BES and how their actions are communicated to customers.

Business is beginning to notice the threat posed by biodiversity loss. 27 per cent of global CEOs surveyed by PricewaterhouseCoopers (PwC) during the second half of 2009 expressed concern about the impacts of biodiversity loss on their business growth prospects. Interestingly, 53 per cent of CEOs in Latin America and 45 per cent in Africa expressed concern about biodiversity loss, compared with just 11 per cent in central and eastern Europe.

1.1 Background to this book

We live in a world transformed by business. Business has prospered by providing products and services to people everywhere, and business plays a key role in economic development. For nature, however, the price of development and business success has been very high.

Most people in business know about climate change and accept the need to reduce greenhouse gas emissions to levels that are consistent with a stable climate. Business leaders are also becoming more aware of the risks of biodiversity loss and the need to respect ecological limits generally (MA 2005).

The economic value of nature is changing, reflecting changes in people's preferences, demography, markets, technology and the environment itself. Companies are responding, but much more work is required to develop and scale up competitive business models that can conserve biodiversity and deliver ecosystem services while also meeting people's needs for better products and services.

The loss of biodiversity and valuable ecosystem services is increasingly well documented (see Chapter 2) and increasingly recognized as creating risks to business (Athanas et al. 2006). Business risk may be related to the direct impacts of a company's operations on biodiversity, or to the dependence of a business on ecosystem services as inputs to production. In other cases, the business risks associated with biodiversity loss may be indirect, operating through supply chains or through market decisions on investment, production, distribution and marketing (see Chapter 3). Companies around the world are finding ways to identify, avoid and mitigate their BES risks, using a range of new tools developed by, with and for business (see Chapter 4).

At the same time, biodiversity and ecosystem services are also the basis of new business opportunities (see Chapter 5). This is most obvious in the case of companies selling goods and services that are directly associated with biodiversity and ecosystems, such as nature-based tourism. But as with BES risk, there are less direct links between commerce and conservation that offer further opportunities. As a result, more and more investors and entrepreneurs are setting up funds and firms dedicated to building biodiversity business (Bishop et al. 2008). At the same time, some companies are discovering that integrating biodiversity and ecosystem services in their management systems can also help achieve wider corporate social responsibility goals (see Chapter 6).

The starting point for this analysis is the well-known fact that markets will not ensure efficient use of resources for which prices are lacking (TEEB Foundations 2010).¹ Because many of the benefits of BES are not reflected in the market prices of goods and services, often due to missing or poorly enforced property rights, these benefits tend to be neglected or undervalued in both public and private decision making. This leads to actions that result in biodiversity and ecosystem loss, which in turn may affect human well-being adversely. This book reviews the state of the art in measuring and managing biodiversity and ecosystem risks in business, capitalizing on new biodiversity business opportunities, and integrating business, biodiversity and development.

1.2 Approach, structure and contents

This section offers a preview of the remainder of this book. First, however, we define some key terms, identify our major assumptions, describe the methods used to compile this book, and list the main objectives and questions that this book seeks to address. We also identify the potential audience for this book and suggest where different readers will find material of interest to them. In the following section, the chapter turns to recent evidence of how business leaders and consumers think about biodiversity and ecosystems, and how this relates to other major trends affecting business.

1.2.1 Definitions

Throughout this book we use the terms biodiversity, ecosystems and ecosystem services, frequently abbreviated as ‘BES’. These terms are defined as follows:

Biodiversity is short-hand for ‘biological diversity’. We follow the Convention on Biological Diversity (CBD), which defines biodiversity as: ‘The variability among living organisms from all sources including, inter alia, terrestrial, marine and other aquatic ecosystems and the ecological complexes of which they are part; this includes diversity within species, between species and of ecosystems’ (Article 2).

According to the CBD, ecosystems are thus one component of biological diversity. This is consistent with definitions subsequently adopted by the Millennium Ecosystem Assessment (MA 2005), which identifies an ecosystem as ‘a dynamic complex of plant, animal, and microorganism communities and the non-living environment interacting as a functional unit’. The main contribution of the MA is the elaboration of the concept of ecosystem services, defined simply as the benefits people receive from ecosystems (for further discussion see Chapter 2).

An important feature of ecosystem services is that they are culturally determined and therefore dynamic. As noted by TEEB, ecosystem services are ‘conceptualizations (“labels”) of the “useful things” ecosystems “do” for people, directly and indirectly & whereby it should be realized that properties of ecological systems that people regard as “useful” may change over time even if the ecological system itself remains in a relatively constant state’ (TEEB Foundations 2010: 18).

1.2.2 Assumptions

Turning from definitions to assumptions and from ecology to economics, this book adopts an explicitly economic perspective on the links between business, biodiversity, ecosystems and ecosystem services. This implies a focus on the value of natural resources to people, rather than on any ‘intrinsic’ value that may be ascribed to natural resources in their own right (e.g. a ‘right to exist’). Of course, we recognize that many of the values people derive from BES are intangible, including recreational, cultural and ‘existence’ values, and that these intangible values may be significant. They are also measurable.

An economic approach further implies the acceptance of marginal trade-offs between BES benefits and other things that people value. While trade-offs may be constrained by lack of adequate substitutes for certain natural resources or ecosystem services, the fact remains that people do weigh the benefits of nature conservation against other things they value in life. In principle, if all values to people are fully reflected in such trade-offs, and subject to some other standard economic assumptions, we can be confident that the resulting use of resources will be economically efficient.

In practice, of course, the economic ideal of perfectly competitive markets, complete and instantaneous information, zero transaction costs, perfect substitution, complete property rights, etc. is never fulfilled. Nevertheless, we argue that more explicit consideration of BES costs and benefits in economic decision making generally results in better (if not optimal) outcomes. Economic valuation may never be perfectly accurate, especially where non-market values are at stake, but it is hard to think of decisions that are not improved by information about economic values, alongside other considerations.

Some other important assumptions behind this book should also be acknowledged:

• We assume continued economic growth and further integration of market-based democracies worldwide, alongside increased public awareness and concern about environmental change, and increased government regulatory capacity and constraints on the use of natural resources. While we acknowledge the existence of non-market models of economic organization, as well as non-democratic forms of government, we see no reason to doubt the continued growth of private enterprise, within increasingly subtle frameworks of economic policy, overseen by democratic governments and guided by increasingly well-informed citizens.
• We also recognize the growing economic and political power of several ‘emerging’ economies, and of companies headquartered in these countries. One notable feature of these emerging economies and companies is their apparent lack of explicit attention to environmental issues generally, and BES specifically, relative to more ‘established’ industrial economies and companies. Whi...

Table of contents

• Front Cover
• The Economics of Ecosystems and Biodiversity in Business and Enterprise
• Title Page
• Copyright
• Contents
• Foreword from H.R.H. The Prince of Wales
• List of Figures, Tables and Boxes
• List of Contributors
• Acknowledgements
• Preface
• List of Acronyms and Abbreviations
• 1 Introduction to Biodiversity and Ecosystems for Business
• 2 Business Impacts and Dependence on Biodiversity and Ecosystem Services
• 3 Measuring and Reporting Biodiversity and Ecosystem Impacts and Dependence
• 4 Scaling Down Biodiversity and Ecosystem Risks to Business
• 5 Increasing Biodiversity Business Opportunities
• 6 Business, Biodiversity and Development
• 7 Summary and Conclusion
• Index