Monthly Archives: January 2012

Valuing Ecosystem Services

Often environmental sustainability issues are so global and abstract, that it is difficult to know what it means for me or my small business. For example, I recently read an interesting blog on Greenbiz on about companies seeing the value of ecosystem services and preserving them to improve their bottom line.

How would I restate the critical importance of ecosystem services so that an ordinary person would understand? Here’s what I would say . . . .

Your Business Budget

Many of you are responsible for a budget, either because you own your business or work for a company. You probably have a good sense of your revenues, expenses, and break-even point. However, I bet you didn’t know that you and your business are getting many services for free. You probably also didn’t know that you will need to start paying for these services at some point in the future. What would higher costs do to your business’ profitability?

What Are Ecosystem Services?

Examples of Ecosystem Services
(click for larger image)

It is likely that you take nature’s ecosystem services for granted. Ecosystem services are services that nature provides us for free, such as water and air purification, soil formation, pollination, and flood control. (See chart for details.)

A Credit On Your Ledger

Globally, nature provides $33 trillion in ecosystem services annually. To put it into perspective – that is more than twice the US GDP in 2011. And nature does this each year for free!

So, what does this have to do with you? If we do very simple math and divide $33 trillion of ecosystem services by the 7 billion people on earth . . . that means each one of you receives about $4,700 from Mother Nature every year. You get to put that on the credit side of your accounting ledger.

A Debit On Your Ledger

Your business expenses could notably go up sometime over time. This is the result of two trends. First, the world’s growing population is straining nature’s available resources. Second, “business as usual” is depleting natural resources and damaging nature’s ability to provide ecosystem services. This means dwindling oil supplies, deforestation, collapsing ocean fisheries, and so forth.

If we put a price tag on the environmental damage due to business as usual, it is three times the amount of money lost in the 2008 financial crisis. And we lose $66 trillion in natural capital each year. The trouble is that many of these natural resources and ecosystem services have no man-made substitutes or, if there are, they are very expensive.

Let me give you two examples of what it would cost us to replace an ecosystem-service.

In a region of China, the farmers hand-pollinate their pears because local bees were wiped out by pesticides. If humans pollinated crops instead of bees in the US, it would cost $90 billion each year.

In New York City, we enjoy clean drinking water, thanks to the watersheds that filter and purify our drinking water for free. If humans purified the water, it would cost $6-9 billion to build water filtration plant and $110 million each year to operate the plant. In both these examples, I’m sure the extra costs would eventually be passed onto us, the consumers.

So what does this have to do with you? If “business as usual” continues to cripple nature’s ability to provide free ecosystem services, you and your business may end up paying more for water, energy, transportation, and food. It is difficult to tell you exactly when and how much extra you might pay. But rest-assured, anything scarce and in demand will command a premium price. It is a question of when, not if. Those additional costs will go on the debit side of your accounting ledger.

Time To Develop A Sustainability Strategy

For these reasons, it is time to develop a strategy to mitigate this risk and protect your business’ profitability. If you have your own business, you are probably the company’s main asset. In this case, your best strategy might be to “reduce, reuse, recycle”.

If you work for a larger company, find out if your company has a sustainability plan that outlines how it will use natural resources more efficiently and have less of an impact on the environment. If your company does not have such a plan, encourage them to develop one so that they are better prepared for the resource-scarce world that lies ahead.

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