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Business.2010 newsletter: Agribusiness

Volume 3, Issue 2 - February 2008: Agribusiness

Identifying and managing risks opportunities

Ecosystems provide businesses with numerous benefits or ‘ecosystem services’. Forests supply timber, purify water, regulate climate, and provide genetic resources. River systems provide fresh water, power, and recreation. Wetlands filter waste, mitigate floods, and provide nurseries for commercial fisheries. However, human activities are rapidly degrading these and other ecosystems. The Millennium Ecosystem Assessment — the largest appraisal 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 time in history. In fact, 15 of the 24 ecosystem services assessed globally had degraded over the past half-century.

Making the connection
These trends are highly relevant to business because company operations and ecosystems are inter-related. Businesses not only impact ecosystems and the services they provide but also depend on them. Ecosystem degradation, therefore, presents a number of risks and opportunities for corporate performance. Companies may face higher input costs, new government regulations, reputational damage, changing customer preferences, or more rigorous lending policies. At the same time, the degradation of ecosystem services can create new business opportunities such as new products and services, demand for technologies that improve the efficiency of using ecosystem services, new revenue streams from company-owned natural assets, and emerging ‘ecosystem service markets’ in which to participate.

However, many businesses fail to make the connection between the health of ecosystems and their bottom line. Environmental impact assessments and other due diligence tools often are not attuned to identifying ecosystem service-based risks and opportunities. As a result, companies may be caught unprepared or miss new sources of revenue.

The Corporate Ecosystem Services Review (ESR) is designed to fill this gap. The ESR is a systematic methodology that helps corporate managers proactively identify specific business risks and opportunities that arise from their company’s dependence and impact on ecosystems. The ESR was developed by the World Resources Institute (WRI) with support from the Meridian Institute and the World Business Council for Sustainable Development (WBCSD). During 2007, five WBCSD member companies — Akzo Nobel, BC Hydro, Mondi, Rio Tinto, and Syngenta — ‘road tested’ the ESR in selected business situations and provided on-the-ground feedback.

Applying the Review
A business can apply an ESR at any stage in its value chain. For instance, the ESR can focus on a company’s own operations, providing insight into the direct implications that ecosystem service trends pose for the company. Mondi, an international paper and packaging group, selected three South African plantation areas — Shanduka, SiyaQhubeka and Tygerskloof — as the focus for its ESR road test. These sites were chosen for the range of physical, climatic and socio-environmental conditions under which the trees are grown.

Alternatively, a business can apply the ESR ‘upstream’ or ‘downstream’ in its value chain. Syngenta’s road test, for instance, addressed one of its customer segments — farmers in southern India. By looking ‘downstream’, the ESR helps the company identify the risks these customers face due to ecosystem degradation and, in turn, identify opportunities for Syngenta in the form of new products or services that would address or mitigate these risks. Syngenta selected India because the country is a significant growth market for agriculture. Given India’s geographic, demographic, agricultural, and climatic diversity, the company focused on the southern states of Andhra Pradesh, Karnataka, Kerala, Maharashtra, and Tamil Nadu to keep the analysis focused.

In March 2008, WRI, Meridian, and WBCSD will release guidelines on how to conduct an ESR The guidelines will:

Introduce the concept of ecosystem services as a framework for assessing a company’s interaction with the environment; Describe how a company can systematically evaluate its dependence and impact on ecosystems and the services they provide; Provide a structured approach for analyzing important trends in the ecosystem services that are the most relevant to a company’s performance; Offer a framework for identifying potential business risks and opportunities arising from these trends; Provide guidance on developing strategies to minimize these risks and maximize these opportunities; and Illustrate how companies have successfully addressed ecosystem-related risks and opportunities.

We look forward to presenting the Guidelines at COP-9.

Craig Hanson is Deputy Director, People & Ecosystems Program, World Resources Institute (WRI).
(1) Millennium Ecosystem Assessment
(2) A subsequent article in Business.2010 will elaborate on the ESR process in greater detail.