In the February issue of this newsletter, we introduced the Corporate Ecosystem Services Review (ESR), a tool designed to help managers proactively develop strategies to manage business risks and opportunities arising from their company’s dependence and impact on ecosystems. We noted that rapid and extensive decline of ecosystem services throughout the world is highly relevant to business because company operations and ecosystems are inter-related.

Yet, many businesses currently fail to make the connection between the health of ecosystems and their bottom line, in part because many ‘traditional’ environmental management tools are not attuned to identifying ecosystem service-based risks and opportunities. Many of these tools are better suited to handle conventional issues of pollution and natural resource consumption. Most focus on environmental impacts, not dependence. Furthermore, they typically focus on risks, not business opportunities. As a result, companies may be caught unprepared or miss new sources of revenue associated with ecosystem change. The ESR is designed to fill this gap.

Features
The ESR has several features making it user-friendly:

It offers a structured methodology (see summary of five steps) to help companies understand their dependence and impact on ecosystems and the resulting business risks and opportunities in a coherent, structured manner. It leverages existing, relevant data that companies may have on hand, although additional research and input are likely required. It has a simple design allowing managers to tailor it to meet their own needs and existing processes. It provides supporting tools and information to help managers throughout the review, including:

• A complete list of ecosystem services, definitions, and examples;
  
• A questionnaire and spreadsheet for assessing corporate dependence and impact on ecosystem services;
  
• A framework and set of questions to guide the analysis of ecosystem service trends;
  
• An extensive list and case examples of business risks and opportunities that might arise from trends in ecosystem services;
  
• A framework to guide the development of strategies for addressing these risks and opportunities; and
  Suggested data sources and case studies throughout.
• It directs managers to a number of issue-specific tools and resources if more detailed analysis is required.
  
• It has a website where managers can download supporting tools and data resources (1).

Business benefits
Road-test experience indicates that the ESR can provide a number of business benefits, such as:

Identifying new business risks and opportunities arising from a company’s dependence and impact on ecosystems and the services they provide. Because the ecosystem services framework is a new approach for assessing the inter-relationship between business and the environment, the ESR can uncover sources of risk and opportunity that traditional strategy development processes miss.

Framing and giving added urgency to risks or opportunities previously identified by management. The ESR can yield new information that raises the profile of issues the company may have considered in the past and that are now worthy of greater attention. Anticipating new markets and influencing government policies that will emerge in response to ecosystem degradation. The ESR can help managers identify opportunities to participate in emerging ecosystem service-related markets such as payments for carbon sequestration, mitigation banking, and eco-labeling systems. It also can help managers prepare for new government regulations and participate in the development of new public policies.

Strengthening existing approaches to environmental impact assessment. The ESR can complement existing environmental management systems and due diligence tools in a number of ways. First, the ESR fills gaps these tools may not consider because the ESR evaluates a suite of environmental and business issues that traditional processes and tools do not address. Second, the ESR — or elements of it — can be directly integrated into a company’s existing environmental due diligence tools. Third, managers can use the ESR to screen or prioritize which environmental issues to evaluate with existing tools.

Improving stakeholder relationships. Many natural resource conflicts that companies face relate to the fact that stakeholders — communities, indigenous people, other industry sectors, nongovernmental organizations — value different services coming from the same ecosystem. The ESR can improve a company’s understanding of these issues and identify options for better managing trade-offs.

Demonstrating leadership in corporate sustainability by proactively addressing the degradation of ecosystem services. Several corporate and environment observers have identified this issue as the next big ‘global environmental problem’ that may garner political attention and impact business (2). This issue is where climate change was 10 years ago and similarly is likely to grow to become a preeminent concern.

Who should conducts a Review?
The Ecosystem Services Review generates most value when managers responsible for corporate strategy, business operations, and environmental performance collaborate. Managers can use or tailor the presentation available online (2) to make the case to colleagues about the value of conducting an ESR and educate them about the methodology. Companies can also opt to hire consultants to apply the ESR.

The ESR is a promising approach for companies to strengthen their ability to respond to a growing global environmental crisis. By accounting more fully for the dependencies and impacts of their business on ecosystem services, managers can better manage the associated risks and opportunities. In addition, by helping companies make the connection between healthy ecosystems and their bottom line, the ESR can stimulate more sustainable business practices and support for public policies that protect and restore the ecosystems upon which we all depend.

Charles Iceland, CFA is Associate, World Resources Institute (WRI) and Mikkel Kallesoe is Program Manager, Ecosystems, World Business Council for Sustainable Development (WBCSD).

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(1) and (3) http://www.wri.org/ecosystems/esr
(2) See Millennium Ecosystem Assessment, 2005. Ecosystems and Human Well-being: Opportunities and Challenges for Business and Industry. Washington, DC: World Resources Institute; F&C Asset Management (formerly ISIS Asset Management), 2004. Is Biodiversity a Material Risk for Companies?