How businesses will get ahead by embracing Natural Capital

Many of us have come across the term natural capital and it is increasingly being used in conversations by those who genuinely care about improving our overall environmental performance, from regulators to stakeholders, to informed investors and employees. But why is this so important for business?

It would be tough to argue a lack of awareness around climate change, and there is a growing (though far too slowly) acceptance of both its reality and urgency. Many people are aware we’re consuming resources way beyond the Earth’s ability to replenish these which will inevitably lead to changes in demand and supply. Equally importantly – but probably less well known, is that these natural resources provide ecosystem services, the very things that support both us as a species and our economies. The simple fact is, that if we erode our natural resources, we lose the ability to enjoy and benefit from the ecosystem services that natural resources provide. Such benefits include basic things like, food & water, raw materials such as timber & fibres, regulation such as climate control, waste decomposition & carbon capture. Also, benefits such as spiritual wellbeing and recreational, the space in which we exist, and especially the environments we enjoy.

Most businesses have already developed ‘sustainability’ programmes, and as good as they may be, they generally focus on reduction of carbon, energy, waste and water. Usually financially driven or to meet regulatory standards, some do go further, but typically environmental considerations are considered secondary to primary business decision making

But this is changing – the wider recognition of climate change, helped by an increasingly active movement is making individuals think more about the choices they make from consumer spending patterns and lifestyle choices, to investment decisions, including sustainable funds, many of which are outperforming conventional stock. Add to this the tailwind brought about from the C19 impacts and the changes in travel and working and there is a real potential shift in the way people think.

Back to businesses – typically businesses generally assume that natural resource supply is infinite and without significant restriction, planning is often short term, and environmental issues are focussed on ‘compliance’.

But as individuals start to choose more carefully, brand positioning becomes significantly more important and broader environmental performance and considerations take on greater prominence.

At the same time, it is increasingly important for companies to consider important business risks such as raw material supply, water consumption, future regulation and liabilities - all of which have the potential to significantly impact business continuity and the viability of business models. Risks around enforcement action by regulators has increased significantly and the removal of maximum financial penalties for many offences is leading to largest fines imposed to date.

Similarly, investors both as individuals and corporate are seeking greater confidence in both environmental performance as well as environmental risk management. This is seen through ESG activities, the rise in number and success of environmental funds, and the potential for preferential finance on the back of environmental performance.

Companies on the front foot are on top of this and gaining traction with their investors as well as customers and employees. Younger staff are making employment decisions based on companies they want to work for and often this includes understanding how they perform environmentally. Developing a natural capital strategy & approach means putting the environment at the heart of decision-making and working towards an environmental net gain. This gives companies a real opportunity to position themselves well from a brand perspective, engage positively with all stakeholders whilst proactively manging future business risk – wouldn’t you want to be part of a company like that?