Diminishing stocks of natural capital present significant risk to business continuity

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Business-critical operations of UK companies are at risk due to diminishing stocks of natural capital, according to new practice notes published today by consultant AECOM and non-departmental public body JNCC. Both organisations warn this could have a significant impact on the bottom line for many UK businesses, unless they take steps to understand their dependency on natural assets. Improved understanding of natural capital could also help companies realise new revenue streams. The practice notes are aimed at companies in the electricity supply and agriculture, forestry and fisheries (AFF) sectors, which rely heavily on natural assets, to help them develop natural capital strategies

 

The practice notes cite overexploitation, increasing demand and the effects of climate change as current threats to natural capital. To mitigate these threats before they impact business operations, the practice notes urge companies to develop an understanding of their dependencies on natural assets. To further protect their bottom lines and maintain business continuity, AECOM and JNCC advise businesses to account for the value of natural assets using tools such as corporate ecosystems review and natural capital accounting.

AECOM and JNCC argue that natural capital accounting can also bring new commercial opportunities by generating revenue streams from stranded assets, such as contaminated land, as well as measures such as carbon or biodiversity offsetting and payments for ecosystem services. Cost savings can also be achieved through more efficient and innovative use of natural assets. Fundamentally, the practice notes warn that failing to consider natural capital in business decision-making could expose companies to risks that may impact their market share and profitability.

Petrina Rowcroft, AECOM associate director, said: “When examining natural capital, UK companies have typically focused on reputational impact rather than business continuity and the bottom line. It is therefore vital that finance departments are involved in discussions about the risks and rewards around natural capital. Incorporating natural capital into business decisions is an important step to reducing risk and realising value. As they are in two sectors highly dependent on nature to carry out day-to-day operations, it is critical that electricity supply and AFF businesses recognise the significance of natural capital, as well as the threats to their survival.”

Action on natural capital is essential to companies in the electricity supply and AFF sectors, as threats to natural capital could severely compromise business-critical functions. From biomass produced through forestry and agriculture to fossil fuels such as coal and oil, electricity supply companies need natural resources to generate power. In addition to these direct dependencies, the sector also relies on wider ecosystem services such as the provision of water for cooling power stations. With its extensive land ownership, the AFF sector also relies heavily on natural capital; soil quality and a secure water supply are vital to business operations.

JNCC project manager, Dr Helen Baker, commented: “There is growing interest within the government sector in developing ways to support UK businesses to assess dependencies and impacts on natural capital, and figure these into day to day management practice. JNCC can contribute through the provision of data, tools and information that can be incorporated into assessments. As well as providing some initial ideas for the two sectors, we hope that the Practice Notes will also encourage a wider societal dialogue on natural capital and facilitate better understanding of the information needed to mainstream natural capital accounting.”

AECOM and JNCC prepared the practice notes to help companies operating in the electricity supply and AFF sectors incorporate natural capital into business decision-making. The notes follow the May publication of a joint report by AECOM and JNCC based on interviews with a range of companies, which found that although awareness of natural capital was high, action was often limited to ‘eco-efficiency’ measures like saving energy and water. Some companies cited a degree of scepticism about the business benefits of natural capital accounting and had no clear approach to evaluating natural capital. The practice notes comprise advice, guidance, tools and recommendations for supporting the implementation of natural capital strategies to help organisations in the electricity supply and AFF sectors achieve business continuity and derive bottom-line benefits from their natural capital assets.