Natural Capital Protocol Natural Capital Protocol Natural Capital Protocol
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NATURAL CAPITAL PROTOCOL CAPITAL NATURAL NATURAL CAPITAL PROTOCOL NATURAL CAPITAL PROTOCOL Contents Foreword by Mark Gough, Executive Director, Natural Capital Coalition 1 Orientation 2 FRAME STAGE: Why? 10 Step 01: Get started 11 SCOPE STAGE: What? 24 Step 02: Define the objective 26 Step 03: Scope the assessment 30 Step 04: Determine the impacts and/or dependencies 43 MEASURE AND VALUE STAGE: How? 53 Step 05: Measure impact drivers and/or dependencies 58 Step 06: Measure changes in the state of natural capital 67 Step 07: Value impacts and/or dependencies 80 APPLY STAGE: What next? 94 Step 08: Interpret and test the results 95 Step 09: Take action 103 Annex A: Classification of ecosystem services 111 Annex B: Valuation techniques for natural capital assessments 112 Glossary 122 References and resources 125 List of tables, figures, and boxes 130 Acknowledgements 132 About the Natural Capital Coalition Back cover Foreword by Mark Gough, Executive Director, Natural Capital Coalition By picking up this document you are joining a growing number of organizations who have recognized the benefits of including natural capital in their decision making. This not only makes their organizations more successful, but is essential if we are to conserve and Orientation enhance the natural world that underpins our societies and economies. I fully expect you are familiar with the multiple initiatives around natural capital and how confusing this arena can be. The Natural Capital Coalition has come together to harmonize existing best practice and produce a standardized, generally-accepted, global approach. Frame stage: Why? stage: Frame Collaboration is essential if we are to address the considerable global challenges we are facing today, such as climate change and biodiversity. No individual organization can solve these alone, and we need to find new ways of working that bring together the views of all stakeholders if we are to find solutions that last. The Protocol development has been a unique testing ground for this theory and has proven that collaboration can provide solutions that are accepted and supported by every element of society. Nature shows us that we live in a complex system of interrelations Scope stage: What? and by embracing this we provide ourselves with an opportunity to unlock significant potential. While the Protocol provides an important step forward, realizing the Coalition’s vision of a world where business conserves and enhances natural capital will also require agreement on the rules around the data and information used to inform decisions. Success will require the creation of enabling policy environments and the integration of natural capital into all decisions so that Measure and value stage: How? ultimately it becomes an integral part of business as usual. I would like to thank all of the people who have been involved in the Protocol development: the technical team; those who ran the business engagement program, those who developed the accompanying sector guides; the pilot companies; the many people who spent time commenting on the draft version; the Steering Group who provided sage guidance; the funders who Apply stage: What next? believed this was possible; the board of directors, and our hosts, ICAEW, who all kept us moving in the right direction. The next step is simple. Apply the Protocol, continue to collaborate, share your experience, and make better decisions. Glossary 1 NATURAL CAPITAL PROTOCOL Orientation Orientation 0.1 What is the Natural Capital Protocol? The Natural Capital Protocol (hereafter the “Protocol”) is a framework designed to help generate trusted, credible, and actionable information that business managers need to inform decisions. The Protocol aims to support better decisions by including how we interact with nature, or more specificallynatural capital, in decision making. Until now, natural capital has for the most part been excluded from decisions and, when included, has been largely inconsistent, open to interpretation, or limited by moral arguments. The Protocol responds by offering a standardized framework to identify, measure, and value impacts and dependencies on natural capital. Why does business need to include natural capital in its decisions? The growing need to conserve and enhance natural capital is well documented. We know that we are depleting natural resources faster than the earth can replenish them, and at an accelerating rate (WWF 2014). We have grown financial capital in large part through the use, exploitation, and degradation of natural and social capital. For most companies, interactions with nature do not yet affect their market value, the price of their products or the price they pay for materials they use, their cash flows or risk profile. If they do, they are not visualized on a company’s profit and loss statement or on their balance sheet. They remain “externalities”, or issues without internal consequence. However there are several potential drivers that may lead to such externalities being internalized in the future including increasing regulatory or legal action, market forces and changing operating environments, new actions by and relationships with external stakeholders, plus an increasing drive for transparency or voluntary action by businesses because they recognize the significance of transparency to future success. The Protocol builds on a number of approaches that already exist to help business measure and value natural capital, including the Corporate Ecosystem Services Review (WRI, WBCSD and the Meridian Institute. 2012.), and the Guide to Corporate Ecosystem Valuation (WBCSD, IUCN, ERM, and PwC. 2011). These and many other important references and resources are listed at the back of this document and provide extremely useful guidance to help complete the Stages and Steps of this Protocol. The Protocol does not, however, explicitly list or recommend specific tools or methodologies. This is because the choice of tools will be dependent on business context, resources, and needs. Further, natural capital measurement and valuation is evolving and Glossary new approaches and methodologies become available all the time. Natural Capital Protocol A standardized framework to The Protocol focuses on improving internal decision making. It is not a formal reporting identify, measure, and value direct framework and does not assume or require that assessment results are reported or and indirect impacts (positive and disclosed externally. Nevertheless, some companies may wish to report their assessment negative) and/or dependencies on natural capital. findings and this is encouraged as a means to demonstrate risks, opportunity and value creation to stakeholders. It is important to note that while the Protocol does provide a Natural capital standardized process, it also remains flexible in the choice of measurement and valuation The stock of renewable and non- renewable natural resources (e.g., approaches used, which means that results may not be comparable within or between plants, animals, air, water, soils, different businesses and applications. Nevertheless, the Protocol does provide the minerals) that combine to yield a foundation for future work around comparability in natural capital reporting and flow of benefits to people standard setting. (adapted from Atkinson and Pearce 1995; Jansson et al. 1994). Market value The amount for which something can be bought or sold in a given market. Price The amount for which something can be bought or sold in a given market. Externality A consequence of an action that affects someone other than the agent undertaking that action, and for which the agent is neither compensated nor penalized. Externalities can be either positive or negative (WBCSD et al. 2011). 2 The Protocol is purposely a broad and flexible framework that is applicable to any business sector, operating in any geography, at any organizational level. It allows you to adapt, leverage, and integrate your existing business processes into the framework if needed, and encourages experimentation with different approaches and methods depending on the decisions you are looking to inform. The Protocol provides guidance on all types of valuation, whether qualitative, quantitative, or monetary, depending on which is most appropriate for the decision you are attempting to inform. Orientation Natural capital is one of several other commonly recognized forms of capital. Others include financial, manufactured, social and relationship, human, and intellectual capital. Natural capital can be seen as fundamental in supporting all other forms of capital; it provides the resources with which we build our societies, economies, and institutions, and ultimately regulates the environmental conditions that enable human life. Furthermore, the benefits of natural capital (e.g., fresh water) are often only realized by applying other forms of capital (e.g., manufactured capital like a water pump, which is purchased using financial capital, and owned and operated thanks to social and human capital). This integration makes it impossible to completely separate any one form of capital from the others, and considering trade-offs between them will be part of any decision. For further information on the various forms of capital, see the Integrated Reporting Framework in IIRC 2013; Pearce and Atkinson 1993; World Bank 2011; and WBCSD 2015 on developing a Why? stage: Frame Social Capital Protocol. Box 0.1 Valuation and monetization To value something means to understand what it is worth