Australian businesses need to consider their dependence on natural capital and the impact their operations have on it to ensure their organisations are resilient and future proof, a global expert has warned.
Bianca Nijhof, the global account leader natural capital for design and consultancy firm Arcadis, is in visiting Australia from The Netherlands for the Infrastructure Sustainability Council of Australia conference. Ms Nijhof said considering the natural environment enables businesses to minimise risk and identify opportunities they otherwise wouldn’t have considered.
“Bringing natural capital into the decision-making processes of a business actually does make your decisions a lot more resilient and a lot more future proof because it allows you to identify risks which otherwise would probably have been hidden,” she said.
“It is also about capturing the opportunities and that is really the way we see it being used in Europe,” she said. “I love to look at opportunities and how you can actually contribute to all the different global things going on like the Paris Agreement, the ESG [environmental, social & corporate governance] – that would really be an opportunity for Australia.”
Ms Nijof said while the approach in the US was one of compliance, Europe embraces natural capital for ambitious reasons. “Businesses and government want to differentiate themselves and they use natural capital as a concept to be able to do that.”
Arcadis was one of the co-writers of the Natural Capital Protocol, a global standardised framework for businesses to identify, measure and value their direct and indirect impacts on natural capital, which was released in July.
Ms Nijhof made note of several European companies that have looked carefully at their impact on natural capital and reaped the rewards.
One approached natural capital from a corporate perspective. Having an ambition to be known and seen to be sustainable, they embraced the Natural Capital Protocol to gain a competitive advantage.
“They said we want to make a statement that we are sustainable and have sustainable ways and we have to adhere to the protocol as well – we have to be aware of our impact and dependencies on natural capital,” she said. “So in that sense they want to differentiate themselves from their peers.”
Another company took natural capital into account when planning an expansion. “Usually when you expand sites you actually have an impact on your natural environment,” Ms Nijhof said.
“The ambition for this company was to really differentiate, not have a loss and possibly even contribute (to the natural environment). “It was collaboration between the business itself, the local NGO and the local people to actually show in a transparent and credible way how they could improve on the natural capital so the biodiversity of the site, on the water use and also the eco system services.”
The company was successful in its mission and this was not only beneficial to their image but the improved natural environment was linked to an increase in productivity and better health of employees.
Not losing capital can mean not losing money – and finding creative solutions
“There were a number of additional benefits as well and in the end they actually reduced the cost significantly of actually building the expansion and maintenance of the structures,” Ms Nijhof said. “If they had not asked the question to [achieve] ‘no loss of natural capital’ they probably would not have saved this much money because they never would have thought of these solutions.”
Ms Nijhof pointed to the Massachusetts Institute of Technology and Boston Consulting Group’s Investing for a Sustainable Future – investors care more about sustainability than many executives believe, released in May, which showed investors see a strong link between corporate sustainability performance and financial performance and are using sustainability data as a rationale for investment decisions like never before.
“It shows a growing number of investors are paying attention to environmental, social and governance performance – so that includes natural capital – because the evidence mounts that sustainability-related activities or materials can influence the financial success of a company,” Ms Nijhof said. “And that’s not only for companies but government-related investment.”
A wide range of investment organisations – from retail investors to asset managers to institutional investors – are making investment decisions using new assessment tools that connect ESG performance with corporate performance.
According to Ms Nijhof, Australian businesses should approach natural capital from four directions:
- over-all strategy
- site-level approach
- supply-chain approach
- finance
“Infrastructure development leaders need to look at sites and ask, ‘what are you doing at that site that is impacting natural capital?’ And ‘how can we contribute positively to the natural capital?’ “
Materials and the supply chain are key
Knowing your supply chain intimately is crucial. “Look back in the supply chain and where those materials come from,” Ms Nihof said. “Have you really made the most sustainable choice for materials and taking natural capital into account? Where were those materials sourced? It’s going back over the whole supply chain and thinking over all the decisions.”
Ms Nijhof champions the use of the environmental profit and loss methodology, which was used in the Natural Capital Protocol. German company Kering first took this approach with its sports brand PUMA in 2011. “That really changed a lot of thinking from a lot of businesses – realising that they have the whole supply chain where there is an impact on natural capital.”
Companies involved in the pilot testing of the protocol were shocked. “The feedback we got from most of the companies is that they hadn’t realised that they had a dependency on natural capital,” Ms Nijhof said. “And that exposed them to a number of risks they weren’t aware of in the future. By actually now knowing those risks, they can take action to minimise those risks.”
The ramifications for businesses if they don’t consider their dependence on natural capital can be enormous, according to Ms Nijhof.
“For example, business disruption because of resources not being available anymore,” she said. “You see that happen in India already where water is one of the main resources (in short supply). Some factories have shut down for two to four months.”
It also affects their ability to adapt to climate change. “By being aware where you have your resources, you are realising your dependence on those resources,” Ms Nijhof said. “Probably also knowing the economy is going to change, you can plan your factories in other places, which makes you more resilient.”
Kering has changed its supply chain based on its findings. “They are making different strategic decisions on where they source their product, what products they use, and what kind of natural resources they use in that product.”
Ms Nijhof believes it’s government and financial institutions that are driving change. “The government obviously for putting in regulations and the financial institutions because of the ESG requirements they ask of businesses and natural capital is increasingly becoming part of that,” she said.
Several banks require companies to provide indicators where they need to be aware of their relationship with natural capital. “If they can actually qualify some of the impacts or dependence they have on natural capital, and if they can quantify that’s even better,” Ms Nijhof said. “But not many companies have reached that level.”