Natural capital is fading and business too is getting worried

According to leading corporate heavyweights National Australia Bank and KPMG, business and economies are under threat from the loss of natural capital.

While most people understand that our rivers and natural beauties such as the Great Barrier Reef are in danger and bemoan their loss on aesthetic and ethical grounds, the clear and emerging thinking is the risk is also to business and our way of life.

The point is that most businesses rely on the use of natural capital to function, either directly or indirectly. This even includes the finance sector, which often invests in businesses with unknown or unquantified natural capital risks.

The topic will be key at the World Parks Congress in Sydney on Thursday, with two new papers from both sides of the socioeconomic “divide” scheduled to be presented amid growing interest in the field.

• See World Parks Congress
• Photos from Biodiversity and Business Symposium, Valuing natural capital to build solutions to address the environmental challenge at NAB, Sydney, co hosted by Sustainable Business Australia, on 8 October 2014

One of these reports, produced by KPMG and NAB, together with the Melbourne Sustainable Society Institute and Flora and Fauna International, will flag that while so much attention has been on the threats of climate change, our polluting and consumption patterns are impacting on our future.

A preliminary paper, Natural Capital at Risk, headlined last month’s Biodiversity and Business Symposium, Valuing Natural Capital to build solutions to address the environmental challenge, held at the National Australia Bank headquarters in Sydney, jointly hosted by Sustainable Business Australia.

Another paper, released on Monday, from the Australian Conservation Foundation and a coalition of 42 environmental groups, also flags degradation in natural resources.

The Australia We Love report says Australia’s rivers, climate, food, forests, oceans and reefs are under threat.

From the business perspective, here are some of the facts, from the preliminary report from KPMG et al: Our global ecosystems deliver essential services worth over US$72 trillion a year and yet the United Nations Environmental Programme in 2010 said nearly two-thirds of our planet’s land and water ecosystems were significantly degraded due to human activity.

A more recent report from the Global Footprint Network shows that “humanity’s demand on the planet is more than 50 per cent larger than what nature can provide”.

This will be costly to business.

In 2012, KPMG’s report, titled Expect the Unexpected: Building business value in a changing world, estimated that companies could “soon expect to lose 41 cents in every dollar earned through paying for external environmental costs. The knock-on effects of such costs would have a huge impact on global economies.

“The risk is very real, especially as natural capital systems are often not linear, which means predicting the threshold or tipping points at which they collapse is not always possible.”

It’s also not always easy to identify the inflection points of risk.

The preliminary paper Natural Capital at Risk said that our reliance included good quality water, soil, air, raw materials, foods, fibres and biodiversity.

But as natural capital flows through the economy, the extent to which a business is dependent on it becomes more challenging to identify.

“The finance sector, for example, has seemingly minimal direct natural capital impacts. However, through its financing and investment activity in particular, it does have indirect dependence and impact.

“Financial institutions are potentially making investments in businesses with ‘unknown’ or ‘unquantified’ natural capital risks. This is why there are a lot of pilot studies and research activities underway both amongst financial institutions themselves and through collaborations of financial institutions with broader business, government and NGOs.”

According to SBA 60 per cent of the world’s ecosystem services have been degraded over the past 50 years. It’s a topic for global concern, with the Economics of Ecosystems and Biodiversity program initiated by the G8+5 environment ministers (2007-2010) revealing that the costs of ecosystem degradation are immense.

“US$2-5 trillion of ecosystem services are lost each year just from deforestation,” SBA said.

Andrew Petersen, chief executive of SBA and spokesperson for Australian Business and Biodiversity Initiative, said: “Natural capital is essential to both the economic and social quality of life in Australia, and the combination of increasing scarcity and uncertainty with social and community pressures is prompting changes in demand and regulation of our natural capital.

“Risks to individual businesses are unique and may need to be factored in to risk assessments including lower profitability, cash flow issues, supply risk, fluctuating commodity prices, and damage to brand and reputation.”

The paper from the ACF-led coalition of groups is likewise focused on the loss of natural resources.

Chief executive of ACF and spokeswoman for the coalition Kelly O’Shanassy said, “Nature supports our lives, livelihoods and our quality of life – every single thing we need to live comes from nature – our rivers, climate, soils, oceans and forests.

“If nature was a bank account, we’d be eating through the capital, not the interest – and when we do that with our savings, eventually we go bankrupt.

“This is an issue for every Australian that depends on clean air and water – and that’s all of us.”

The report found:

• More than 3000 Australians die every year from air-pollution-related illness, nearly twice the national road toll
• The annual health cost of air pollution in Australia is estimated to be $11.1 billion to $24.3 billion
• Since the 1970s, the use of agricultural chemicals in Australia has steadily risen, contaminating rivers, creeks and reservoirs Australians rely on for drinking water
• Each Australian family contributes enough rubbish each year to fill a three-bedroom house
• Total consumption of natural resources per person in Australia is one of the highest in the world and is projected to increase by up to 27 per cent by 2030
• By 2050, energy consumption in Australia is projected to increase by around 21 per cent, with only 14 per cent coming from renewable sources
• One million hectares of Australian native vegetation was cleared every year between 2000 and 2010
• Land clearing, irrigation, dams and weirs have altered more than 85 per cent of Australia’s rivers
• Of the 68 zones of the Murray-Darling Basin, Australia’s most significant agricultural region, only one zone is rated as being in good health
• 1259 plants, 396 animals and 67 ecological communities are listed as threatened
• Invasive species have significantly contributed to extinctions in most regions of Australia
• Concentrations of CO2 in the atmosphere are higher than any time in the last 800,000 years
• We will likely see four degrees of warming by the end of this century
• Since 1985 more than half the Great Barrier Reef’s coral has been lost, with remaining coral cover predicted to be lost with two degrees of warming through climate change
• Two degrees of climate warming will likely mean the loss of 80 per cent of freshwater wetlands from Kakadu National Park and Queensland’s tropical forests