Valuing Natural Capital at McDonald's, Unilever and Coca-Cola: GreenBiz Conference
“We use nature because it's valuable, but we lose nature because it's free.”
-Economist Pavan Sukhdev, as quoted by Neil Hawkins, Vice President of Sustainability and EH&S at Dow Chemical at GreenBiz Forum NYC 2013.
Costs of Climate Change and Water Scarcity
The impacts of climate change and increasing water scarcity are already costing businesses real money. That was perhaps the single most prevalent theme at this week’s GreenBiz forum in NYC.
Business leaders around the world are becoming keenly aware of the real business costs of resource scarcity, said Andrew Steer, president of the World Resources Institute. Steer said that, in a survey of 1000 attendees of the World Economic Forum in Davos, water and climate change each ranked in the top four business risks confronting today's business leaders.
That sentiment transcends the rarefied air of Davos. More than 70% of Fortune 500 CEOs say climate risk is substantial and that they’ve implemented GHG reductions, while 53% of those same CEOs said that their company bottom line is already impacted by water risk, according to Steer, who was formerly Special Envoy for Climate Change at the World Bank.
In a 2012 interview, Unilever CEO Paul Polman said climate change already costs his company 200 million euros per year. Even though they may be one of the few to admit it, Unilever is far from alone.
So how can companies manage risk and ensure resilience in a time of increasing resource scarcity? They can place value on the natural capital – the water, trees, fish and other resources – that they rely on to do business.
Life Cycle Assessment and Sustainability ROI
Life Cycle Assessment (LCA) and Sustainability ROI, two of EarthShift’s core capabilities, both have key roles to play in this valuation process. Without the understanding of resource use and environmental impacts across the life cycle of a firm or product, placing a value on those resources would be daunting. And without an understanding of social and cultural risks and opportunites, the natural capital valuation won’t go far enough in reducing corporate risk and ensuring resiliency.
A recent non-business example offers a simple illustration, said Michelle Lapinski Director, Corporate Practices at The Nature Conservancy. After Superstorm Sandy, places with breakwaters and other preventative structures are still there. Places without them aren't, Lapinski said.
The same argument follows in business. Companies of all sorts (but particularly large, resource-intensive firms) face disruption or significant lost value without natural capital valuation, and the planning and mitigation strategies to account for that value.
That is true for all sorts of companies, and some of the biggest in the world are putting greater emphasis on this process. Besides Lapinski and co-organizer PJ Simmons of the Corporate Eco Forum, a conference panel included representatives from Dow Chemical, Coca-Cola, TD Bank NA, Duke Energy, CH2M Hill, and Darden Restaurants.
Valuing Natural Capital at Coca-Cola
Coca-Cola’s Seabright offered a clear example of the “direct relationship between natural capital and the business”: As the world’s largest beverage company, “healthy watersheds are the first line in our supply chain,” he said.
That’s why, as part of Coca-Cola’s commitment to replenish as much water as it uses by 2020, the company mandates that all plant operators now adhere to "a protocol to understand where their water comes from,” not just the municipality, but also the watershed. The protocol includes a discussion of the risks, the other users, and the groups that share a stake in maintaining the water's supply and quality.
Concerns about future resource availability are also leading companies to look across their value chains and supply chains to drive systemic change, sometimes exercising their influence as many as three or four steps away from their own core operations.
Natural Capital at McDonald's
McDonald’s is one firm whose scale provides some of the most fertile ground for change. Bob Langert, McDonald's VP of Corporate Responsibility, told the audience at GreenBiz that 1.7 million people work for McDonald's, serving 7 million people every day.
Now that’s scale – the kind of scale that can drive large-scale positive change. Langert said that McDonald's is using its size and leverage to make beef production more sustainable. In fact, Langert said that doing so is "the company’s #1 priority.” Unfortunately, Langert offered no details on how McDonald's plans to achieve such a herculean task, or to do it while maintaining the artificially low prices of its products.
There is precedent that, when it succeeds, McDonald’s makes an impact that sends waves (not ripples) through its entire supply and value chain. (Read more in an excellent piece from GreenBiz senior writer Marc Gunther here).
The Role of Storytelling
Still, there are significant challenges in driving the consumer demand that inspires such change. Simran Sethi, a journalist who spoke on the power of storytelling at the conference, said that there is no evidence that data alone can change behavior. Instead, it’s the ability to translate that data into compelling, personalized, immediate stories that will drive needed change.
Amy Hartzler, Studio Director for Free Range Studios, agrees. In her call to move from inadequacy marketing (where brands swoop in and rescue consumers from their own bad breath and other inadequacies) to empowerment marketing (where people are treated as capable citizens first), she says that brands can become mentors that empower consumers to be heroes, not the huddled consuming masses with so much extra stuff that the self-storage business has seen 1000% increase in business. That number comes courtesy of Adam Werbach, the former Executive Director of the Sierra Club and founder of social sharing site Yerdle.
At all levels of society, and in all industries, better resource utilization is becoming an absolute priority. GreenBiz Forum NYC drove that point home.
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