BP’s Deepwater Horizon oil well crisis in the Gulf of Mexico is a caution to other companies to take stock of the entirety of their natural capital—not just the natural resource reserve they draw on, but the ecosystems in which they operate. The idea that natural capital should be viewed as a balance sheet asset, to be as carefully stewarded as other forms of capital, surfaced in the late 1990s. But with the publication of the Millennium Ecosystems Assessment by 1,360 international scientists in 2005, more firms are moving from theory to practice and taking stock of natural capital in the course of ongoing strategic planning. In doing so, they comply not only with and capitalize on increasingly strict environmental regulations, but are finding ways to reduce or mitigate risk (BP’s Achilles heel) and raise their bottom lines through cost reduction, new product development, and new value streams. The “feel good” aspect of conservation for these businesses is becoming a happy byproduct of a solid business case.
Take for example Oregon’s Clean Water Services, a public utility that in reviewing its options for meeting state temperature requirements for treating waste and sewage water found a natural means that met state requirements, saved money, and lowered risk to the single clean water source for Washington County. By including the entire ecosystem in its assessment of investment options, Clean Water Services discovered that using forest shade to control water temperature complied with the law for a fraction of the cost of installing chillers (priced at $102 to $255 million) at four treatment facilities, which cool treated water output. The company planted trees and shrubs along the Tualatin River at a projected cost of $12 million over five years to lower river temperatures. In addition, the trees prevent soil erosion, which can affect water quality.
Although compliance is often a trigger for incorporating natural capital into strategic planning, increasingly organizations are looking beyond regulations, finding new products and markets that broad thinking about the services an ecosystem can provide. They are discovering value in the byproducts of the things they make and sell—even in the waste they generate in production processes. Lindt USA, a chocolate maker, for example, harvests cocoa beans as part of its supply chain, and so has long factored the value and supply of the cocoa bean as an integral part of its business case. Recently, however, the company has entered into a partnership with Public Service of New Hampshire (PSNH), New Hampshire’s largest electrical utility, to use its cocoa bean shells—a byproduct of production—to produce electricity. By considering the entire cocoa bean as a natural capital asset, Lindt has eliminated its processing step in Switzerland and can now ship its cocoa beans directly from equatorial countries to its manufacturing plant in Stratham, NH, reducing costs and reducing its carbon footprint by not disposing of its byproduct in landfills. And PSNH burns a half-ton less of coal for every ton of shells it receives to produce electricity.
In its best form, incorporating natural capital into business decision-making not only mitigates risk of noncompliance but also creates solutions for supply chains and markets. Likewise, the benefits not only fall to a corporation’s bottom line but also can create sustainable business opportunities for others. DaimlerChrysler, for example, used to rely largely on plastic fillers for its Mercedes-Benz headrests. But recently, the company began partnering with the South American environmental organization POEMA to help farmers improve their farm management by promoting sustainable mixed-use agriculture. The farmers’ production of coconut fiber, from which DaimlerChrysler used to source some of the material for the headrests, has increased fourfold. With less risk of input shortages, DaimlerChrysler has now stopped using plastic fillers, realizing 5 percent savings in the process.
Just as the notion of human resource management has migrated to a practice of active investment in human capital, so the concept of natural capital is catching on with strategic planners, enhancing both corporate sustainability and bottom lines.