Trucost has undertaken this study on behalf of the TEEB for Business
Coalition.1 Findings of this report build on TEEB’s The Economics of
Ecosystems and Biodiversity in Business and Enterprise2 and the World
Business Council for Sustainable Development’s Guide to Corporate
Ecosystem Valuation3 by stimating in monetary terms the financial risk from unpriced natural capital inputs to production, across business sectors at a regional level. By using an environmentally extended input-output model (EEIO) (see Appendix 2), it also estimates, at a high level, how these may flow through global supply chains to producers of consumer goods. It
demonstrates that some business activities do not generate sufficient profit
to cover their natural resource use and pollution costs. However, businesses and investors can take account of natural capital costs in decision making to manage risk and gain competitive advantage.
Natural capital assets fall into two categories: those which are non-renewable and traded, such as fossil fuel and mineral “commodities”; and those which provide finite renewable goods and services for which no price typically exists, such as clean air, groundwater and biodiversity. During the past decade commodity prices erased a century-long decline in real terms4, and risks are growing from over-exploitation of increasingly scarce, unpriced natural capital. Depletion of ecosystem goods and services, such as damages from climate change or land conversion, generates economic, social and environmental externalities. Growing business demand for natural capital, and falling supply due to environmental degradation and events such as drought,
are contributing to natural resource constraints, including water scarcity.
Government policies to address the challenge include environmental
regulations and market-based instruments which may internalize natural
capital costs and lower the profitability of polluting activities. In the absence of regulation, these costs usually remain externalized unless an event such as drought causes rapid internalization along supply-chains through commodity price volatility (although the costs arising from a drought will not necessarily be in proportion to the externality from any irrigation).
Companies in manysectors are exposed to natural capital risks through their supply chains, especially where margins and pricing power are low. For example, Trucost’s analysis found that the profits of apparel retailers were impacted by up to 50% through cotton price volatility in recent years.5 Economy-wide, these risks are sufficiently large that the World Economic Forum cites ‘water supply crises’ and ‘failure of climate change adaptation’ along with several other environmental impacts among the most material risks facing the global economy.6
Global Climate Change http://courses.dce.harvard.edu/~envre130
Environmental Justice http://courses.dce.harvard.edu/~envre145
Environment Ethics http://courses.dce.harvard.edu/~envre120
Cyprus International Institute (CII) (Harvard School of Public Health) http://Cyprus-Institute.us