Business Case

NATURAL CAPITAL – the critical systems and resources nature provides – underpins the successful functioning of our economy, businesses and societal wellbeing. However, much of this capital, for example, freshwater, forests and biodiversity are being depleted at an alarming rate and critical support systems such as the ability to regulate climate and flood defences are failing. The social and economic value of natural capital is vast, yet it is not adequately captured in the market. According to the Chartered Institute of Management Accounting (CIMA) and EY, 'Natural Capital is the Elephant in the Boardroom – it is invisible in the vast majority of corporate decisions, accounts and economic models.' This is one of the causes of its ongoing degradation.

As illustrated in Figure 1, very conservative estimates of economic value provided by nature's services to the global economy are $US50 trillion/year compared to global GDP $US63 trillion/year. In comparison, a relatively small $93 billion is estimated as needed to preserve natural capital (figures are for 2010). This puts the scale in context.

Examples of economic values estimated for a selection of nature's services is in Figure 2.

The global cost of environmental damage from business activities such as water pollution, loss of fertile land, soil erosion, drought, overfishing and deforestation is estimated at over $US6 trillion. This is estimated to rise to $US28 trillion by 2050 if 'business as usual' continues. If Mother Nature sent an invoice, estimates for the cost of the top 100 environmental externalities from business to the global economy/annum are over $US4 trillion according to a study from the Natural Capital Coalition. This includes costs from GHG emissions, pollution, land conversion, waste and water use from primary business sectors across world regions. The top 20 sectors with highest costs and regions most impacted are illustrated in Figure 3.

The study estimated that the profits of many high impact sectors would be wiped out if these costs were accounted for. While there are many assumptions and uncertainties built into the calculations of these costs, the important message is the urgent financial rationale for reducing natural capital risk. If these externalities were internalized through regulation, taxation or markets, many sectors annual profits would not cover the bill.

The future shock for business is the potential for profit to be wiped out as natural capital is internalized through regulation, taxation and markets. Companies who act now to future-proof are better positioned to manage and thrive in a future 'resource-constrained world.

Our current economic and business models assume an infinite supply of natural resources and functioning ecosystems. This is flawed. One of the main drivers for integrating natural capital considerations in bus