Posts Tagged ‘Business risk’

The nature of ecosystem service risks for business

Wednesday, June 15th, 2011

KMPG, a consultancy, recently published a report on ecosystem service related risks to business. The 20-pages report is available for free on the web (pdf here) and it provides some interesting insights into the business point of view.

A complex issue that needs to be made more palatable
The report mentions the need to demystify biodiversity and ecosystem services for business. This is probably central to any further consideration of these issues in the corporate world yet the report starts by mingling the complex and varied issues of biodiversity and ecosystem services into a single handy acronym “BES”. This is certainly helpful but such over-simplification could also generate confusion. Business leaders and decision-makers will be tempted to look for all-in-one solutions to all their “BES issues”, with little regard to differences in the specific issues they have to consider: land degradation, dynamics of species and natural habitats, natural resources (water, timber etc.), access to land…

Risks : exposure x preparedness
The report offers a nice summary of BES-related risks for businesses. These 5 risks are the same as those of the TEEB report but they come in handy:

  • Reputational risk, especially concerning access to funding
  • Regulatory risk, such as the expansion of protected areas or the strengthening of protected species legislation
  • Operational risk, concerning the sustained provision of key inputs (e.g. clean water) or ecosystem services
  • Legal liability risk, for example in the case of accidental damage to ecosystems or protected species
  • Systemic risk, when a business is overly dependent on a particular ecosystem service
  • The authors reviewed 11 published reports (which they claim to be “authoritative”) and consulted 5 experts to make a cross-sectoral analysis of business exposure to BES risks (exposure to each of the 5 risks above was rated on a scale of 1 to 3 and an average calculated) and their preparedness (which is a weighted average of scores given on a scale of 1 to 3 for the role of BES in a business’s competitive advantage, governance, policy/strategy and management/implementation). The report identifies three sectors as facing particularly high risk: food & beverages, mining and oil & gas. They also mention the banking sector because it is very unprepared.

    The report concludes by identifying three main areas for companies to focus on:

  • Their dependence on water
  • Their reputational risk, especially if their operations are associated with land conversion (= habitat destruction) or carbon (= green-house gas emissions)
  • Their dependence and impacts on BES throughout their value chain – why dependence on water was singled out as distinct from this broader issue is not explained.
  • Recommended actions and new opportunities (?)
    The report does not provide a new set of suggested actions for increasing a business preparedness regarding BES but instead lists those of the TEEB report. Among these is the recommendation to take action to “avoid, minimize and mitigate BES risks, including in-kind compensation (‘offsets’) where appropriate”. In this regard, it is interesting to note that the report mentions environmental markets as an opportunity for land intensive industries (i.e. extractive industries), if they make the effort to value ecosystem services within their land holdings to “identify potential assets as well as risk”.

    This recommendation, together with a widespread push in favour of payment for ecosystem services schemes and “conservation banking” (the latter is also mentioned in the report) is bound to stir concern in the nature conservation community : should a business be rewarded for owning land that harbours biodiversity or provides ecosystem services or should it be rewarded for actually acting in favour of BES, e.g. through proactive restoration or enhancement efforts?