Natural Capital - risks and opportunities

Taking nature for granted can have serious consequences. We all rely on natural capital; our atmosphere, oceans, ecosystems and minerals. We also depend on the goods and services this natural capital provides – goods like food, fuel, fibre and medicines; and services like climate regulation, water filtration and erosion control. But all too often these goods and services are unpriced. At best this means they are under-valued by business, at worst, they may be economically invisible. These unseen dependencies on natural capital result in unmanaged business risks. Risks which can have material impacts on the bottom line.

Similarly, many of the impacts we have on Natural Capital currently bear no cost. Our emissions to air, discharges to water and use of land and other natural resources frequently impose impacts on others for which they are not properly compensated. These uncompensated environmental impacts are called ‘externalities’ and they too can result in serious business risks. New regulation, legal action, consumer boycotts and brand damage can all lead to externalities being ‘internalised’, resulting in costs to the business. As a result they need to be treated like any other serious ‘off balance sheet liability’. Carefully understood, measured and managed.

Of course where there is risk there is opportunity. By understanding and embracing natural capital dependencies, companies can frequently get more value at lower cost, whilst enhancing rather than degrading natural capital. Similarly, understanding environmental impacts can also create new value, by enabling innovation, reducing costs and enhancing reputation.

Managing natural capital risk and opportunity starts with assessing which of your company’s interactions with natural capital could warrant assessment. At PwC, our established team of environmental economists, scientists, ecologists and data analysts, can help you work out where to start, or help you refine your existing natural capital assessment approaches if you’re already underway. From there, we can support you as far as you want to go on the journey to sophisticated spatial natural capital assessment and valuation. We can build bespoke tools to help you manage your interactions with natural capital, and support you to integrate results into management information systems and decision processes.

Natural Capital Diagnostic

Our natural capital diagnostic workshop is a great place to start. It combines simple data about your business, with simplified desktop versions of our natural capital assessment models, and insights from our experts, to provide an initial natural capital impact and dependency assessment.

Sharing our valuation methodologies

We believe greater transparency is needed on the methods used to value business impacts on natural capital, to build trust in the approaches, accelerate the pace of advancement and enable more businesses to measure, value and manage their impacts.

For these reasons we’re publishing our detailed methodology papers. The methodologies were originally developed for Environmental Profit & Loss accounts, but are flexible to the objectives of the user and can be applied in almost any corporate context.

Individuals downloading this document are doing so in accordance with the PwC Legal Disclaimer.

We also submitted our methodologies to an Independent Methodology Review Panel established by the Natural Capital Coalition to assess proprietary natural capital methodologies. Our methodologies were among only four recommended by the panel to inform the development of the protocol.

The panel said: “PwC’s methodology scored very well against the criteria…” “The methods give a thorough, referenced and verifiable approach for valuation.”

Helping to develop the Natural Capital Protocol

We’re currently working in a consortium led by the World Business Council for Sustainable Development to develop the Natural Capital Protocol on behalf of the Natural Capital Coalition. We submitted our methodologies to help inform the protocol and we’re now working as part of the technical group authoring the protocol. We also look forward to working with several organisations to support their efforts to pilot the protocol.

Four TIMM quadrants

  1. Social Impact - Measures and values the consequences of business activities on society such as health, education and community cohesion.
  2. Environmental Impact - Puts a value on the impact business has an on natural capital eg. emissions to air, land and water, and the use of natural resources.
  3. Tax Impact - Values a business' contribution to the public finances, including taxes on profits, people, production and property, as well as environmental taxes.
  4. Economic Impact - Measures the effect of business activity on the economy in a given area, by measuring changes in economic growth (output or value added) and associated changes in employment.