Business Must Conserve Ecosystem Services or Pay the Price

WASHINGTON, DC, July 12, 2005 (ENS) - Business and industry are dependent upon services provided by ecosystems, but many, such as fisheries, forests and water supplies, are in decline. By 2010, this could mean increased costs for companies who rely directly and indirectly on these natural resources, warns a new report from the Millennium Ecosystem Assessment.

On the other hand, the report says, companies who use natural resources more wisely are likely to be better placed to respond to sudden shocks including higher oil prices, a dramatic fall in the availability of raw materials or greener rules, regulations and laws that may be in the pipeline, according to the report, "Ecosystems and Human Well-being: Opportunities and Challenges for Business and Industry," issued today.

The Millennium Ecosystem Assessment is an international work program designed to meet the needs of decision makers and the public for scientific information concerning the consequences of ecosystem change for human well-being and options for responding to those changes. Launched by UN Secretary- General Kofi Annan in June 2001, the assessment was completed in March 2005. This is the fourth in its series of reports.

Ecosystem services include the provision of water and food, control of pests and pathogens, renewal of fertile soil, control of floods, water and air purification, storage of greenhouse gases, nursery grounds for fish, pollination of crops, raw materials and new products.

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Degraded coastal forest in New Zealand (Photo courtesy YPT)
The overall Millennium Ecosystem Assessment has concluded that two thirds of the world’s ecosystems ranging from wetlands and coastal areas to forests and soils are either degraded or being managed unsustainably. The new spin-off report argues that this has important consequences for business and industry.

"In the past the goods and services delivered by nature have all too often been seen as free and available at little or no cost," said Klaus Toepfer, executive director of the United Nations Environment Programme (UNEP), which has played a key role in the Assessment and its spin-off reports. "This report makes it clear that this must and will change as these resources become increasingly scarce and society demands higher standards of environmental care."

Some business leaders are already recognizing the need to develop cleaner and greener technologies and conserve the natural resources on which they depend.

"Business cannot function if ecosystems and the services they deliver - like water, biodiversity, fiber, food and climate - are degraded or out of balance," says James Griffiths of the World Business Council for Sustainable Development. "If properly addressed, business will be able to translate the challenges into opportunities."

Steve Percy, retired chief executive officer of BP America and co-chair of the new report, said "All businesses will be more competitive if they create their strategies with the current and projected condition of ecosystems and ecosystem services in mind, and the Millennium Ecosystem Assessment provides an excellent source of information on the trends and linkages important to business."

Changes in ecosystems are increasing the likelihood of surprises in the future, such as a collapse of previously reliable sources of food, pest outbreaks, catastrophic floods or the disappearance of economically valuable species, the report warns.

The role of business - and its impacts on and stewardship of ecosystems - will come under increasing scrutiny by governments, customers, competitors, nongovernmental organizations and the finance sector as ecosystems come under ever greater development pressure, says Griffiths.

Water scarcity is probably of greatest importance to businesses and will, like changes in the oil supply, impact companies globally, the report states. Up to a fifth of freshwater use currently "exceeds long-term sustainable supply" and is being met by water transfers or unsustainable "mining of groundwater."

Companies will have to make decisions about where they locate operations based on water supply. Meanwhile, businesses that find new and more efficient ways of recycling and using water will fare better.

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U.S. agronomist Jim Smart and Mexican farmers Miguel Morales Beltran and Hector Rodriquez Mediola discuss the drought that caused this irrigation ditch near Rio Bravo, Mexico, to dry up. (Photo by Jack Dykinga courtesy USDA)
Companies who continue to pollute and damage ecosystems may find themselves squeezed out of profitable locations by other industries. The report cites the case of tourism.

"With tourism becoming the world’s largest employer and an important economic factor in developing countries, native forestlands, coral reefs and other natural resources will be increasingly perceived as vital business assets of many private companies," it says.

"Much of the Earth’s remaining natural capital, including genetic diversity up to the carbon storage of greenhouse gases and the materials and services underpinning tourism and developments in the food, pharmaceuticals and tourism industries are found in developing countries," said Toepfer.

"For example, the carbon absorption and storage capacity of the world’s tropical forests are now conservatively estimated to be worth $60 billion a year. We need imaginative financial mechanisms and incentives to give these resources real value and to encourage re-investment in the natural capital we have already over-used," he said.

Antony Burgmans, chairman of Unilever N.V, agrees that innovative solutions are required. "The solutions of the past are often not robust enough under the conditions of global change and need to be re-thought and re-implemented," he said.

Climate change presents significant threats and opportunities for business and industry, the Assessment report says. Businesses will have to take the impact of the warming climate on ecosystems and their goods and services into account, and they may be able to develop and sell profitable low carbon technologies.

"Business as usual is no longer acceptable or sustainable," Griffith said. On the other hand, companies that pioneer innovative strategies and technologies that anticipate or respond to ecosystem change will clearly gain competitive advantage, he said.

Investment in new technology is likely to pay dividends and result in new products and businesses as governments, local authorities, shareholders and consumers demand higher standards and greater accountability.

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Netcages are part of a salmon farm on the British Columbia coast. (Photo courtesy B.C. Salmon Farmers Assn.)
Overexploitation of the marine environment is already impacting some businesses as a result of lower catches of fish for food and animal feed. The report warns that more are likely to suffer as a result of pollution, which results in disease outbreaks and blooms or dead zones in the world’s oceans and seas.

The decline in fish populations has spawned a growth in farmed fish and products such as shrimp. Increasing consumer awareness of the environmental impacts of farmed fish and seafood is now favoring those companies with more sustainable and less environmentally damaging practices, the report states.

The net value or benefit of many ecosystems is higher when they are intact than when they are damaged or converted to other uses. For example, an intact wetland in a northern country is worth nearly $6,000 a hectare, according to the Assessment. Drained and changed for intensive agriculture, the value falls to just over $2,000 a hectare.

Intact mangroves are worth $1,000 a hectare. Cleared and converted for shrimp farms, the value falls to about $200 a hectare.

Companies who fail to factor in the business risk of declining ecosystems and the business opportunity of conserving them may find that raising finance and insurance becomes harder and more expensive.

Environmental risk and the importance of ecosystems to a corporation’s "bottom line" are increasingly being recognized by fund managers. This is underscored in numerous recent surveys and reports including ones by UNEP’s Finance Initiative endorsed by a wide range of financial institutions.

"Fortunately, many corporations are already aware of this and are grappling with these fundamental issues through initiatives such as the UN Secretary-General’s Global Compact," Toepfer said.

"New markets, such as those that trade carbon and access and benefit sharing of genetic resources, are also developing. And many governments are drawing up regulations and legislation to steer firms onto a more resource efficient path," he said.

"However," said Toepfer, "given the scale of environmental damage and the urgency to act, much, much more needs to be done. I hope this report, the work of over 1,300 experts including representatives of business, will be that wake up call."