Measuring natural capital

The economic value of sustainability

A new study has added evidence to the argument that placing an economic value of goods and services from the natural environment has the potential to lead to better decision making and engage influential stakeholders in achieving sustainable outcomes.

In their study published in the journal Ecosystem Services, researchers assessed the impact of best practice agricultural advice provided by the companies’ farm advisors to reduce the environmental impact of agricultural production of the barley farmer that supply the company.

They found that the barley farmers working with the company extracted less ground water, produced less greenhouse gas emissions and had a higher farm income than those farmers not involved in the scheme.  This showed evidence that investing in sustainability advice improved business.

Co-author Dr Colm Bowe from the Environmental Research Group at the LJMU School of Natural Sciences and Psychology explains:

“We are dependent on services and goods provided from the natural environment, termed ecosystem services or natural capital. However, under the current economic system these benefits from the natural world are undervalued and not considered in common measures of growth, development or wellbeing leading to poor decision making in the private and public sector.”

Colm Bowe and Dan van der Horst from the University of Edinburgh have been working with SABMiller (facilitated by the Cambridge Institute for Sustainable Leadership and funded by the NERC Valuing Nature Network) to address this gap by quantifying and valuing natural capital impacts of the company supply chain and activities in Rajasthan India.

Colm continued:

“Within parts of the business community there is a growing recognition of the need to account for natural capital in order to be able to safeguard the long-term success of the company. However, there has been little research to date into the most appropriate methods for this novel form of corporate accounting.”

By estimating the economic value of the reduced impact on natural capital, it was identified that the reduced exploitation of ground water (alone) exceeds the advisors' annual salaries, suggesting that under full social and environmental accounting, the farm advisor services are not a cost factor, but a profit-making unit of the company. The study also highlights how such initiatives if further developed may provide an alternative to Payment for Ecosystem Services Schemes (PES) - schemes in which the beneficiaries, or users, of ecosystem services provide payment to the stewards, or providers, of ecosystem services.

The study originally published as a working paper was also the key case study in the development Cambridge institute for Sustainable Leaderships E.Valu.A.Te Manual and toolkit. The manual and tool kit provide a step by step guide for business to value natural capital impact.

Full paper reference: Bowe C., and van der Horst D. (2015) Positive externalities, knowledge exchange and corporate farm extension services; a case study on creating shared value in a water scarce area. 

Ecosystem Services 15, 1-10.  doi:10.1016/j.ecoser.2015.05.009

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