It may be that the emerging concept of Natural Capital provides the answer we are looking for; a pragmatic expedient to modify business behaviour towards a more sustainable world, or is it naturally missing the point?
Last week saw the inaugural World Forum for Natural Capital in Edinburgh; a gathering of the great and the good, focused on generating a greater understanding on the implications of the fast evolving debate about natural capital, and how the associated opportunities and risks could affect business profitability. It was hoped this event will mark an important step in moving the debate further towards action.
Why is this an important issue in the business world? The key problem to date is that virtually all businesses around the world have tended to exploit the natural environment - in terms of resources, waste, emissions, and so on - but these natural assets do not appear on traditional balance sheets and can, therefore, be invisible in our decision-making. Out of sight, really does mean out of mind.
Accounting for externalities
But with environmental degradation taking place at increasingly ferocious rates, the range of problems in our natural world and our treatment of so-called 'externalities' can no longer be ignored. There are serious issues and the numbers involved are big. According to a study commissioned by UNEP in 2010, environmental damage caused by human activity in 2008 was estimated to be $6.6 trillion, equivalent to 11% of global GDP. http://www.unpri.org/viewer/?file=files/6728_ES_report_environmental_externalities.pdf This is a huge economic impact that cannot be ignored, and a price that must be paid, somewhere down the line.
The TEEB Synthesis Report Mainstreaming the Economics of Nature provides a useful platform for linking biodiversity and economics - putting a value to natural capital. Building on these concepts at business level, we see Environmental, Social and Governance (ESG) metrics are likely to become increasingly important within investment decisions.
And companies could increasingly use integrated reporting - in line with the formats developed by the Global Reporting Initiative (GRI) and the International Integrated Reporting Council (IIRC) - to better inform both business executives and investors on the interactions between different forms of value and capital, and where financial risks may lie.
The key underpinning philosophy is that we can't manage what we don't measure. These approaches point towards the true cost of ownership of our businesses and our actions - taking all factors into account.
Sense of urgency
One can get a real sense of urgency, as leaders in the business world seek to right the wrongs and ensure that natural assets have capital values assigned. Sir Richard Branson's B Team has recently embedded this approach within its agenda, as a key area for attention.
Perhaps this is a good thing? Perhaps we shouldn't ask too many questions, and just get on with deploying this new philosophy, to achieve widespread adoption and a greater understanding of the true costs of conducting business? Perhaps this will then drive the right behaviours and help us accelerate towards a more sustainable world?
But we might also stop and ask ourselves - before we leap into action - is this the right way to go? Just because it has the word 'natural' as a prefix, doesn't automatically make the idea of Natural Capital right. After all, natural gas might sound like a good idea, but it is still a fossil fuel that generates carbon emissions and adds to our shared problem of global climate change.
A marriage of 'natural' and 'capital'?
A key point, it might be argued, is that these various frameworks seek to impose monetary and market values on to the natural world, in an attempt to integrate the nature and sustainability within a capitalist framework. A case of, if we can assign pounds and dollars to nature, it becomes worth something.
This might be well intended, but might also have some limitations. Many will point to the true value of natural assets - the ecosystems that support our world are so fundamental that they are in fact beyond monetary value. As John Ruskin wrote, 'There is no wealth but life'.
The reality is that there will be serious consequences for human existence if we undermine our habitat beyond certain thresholds, and no amount of financial wizardry can resolve this fundamental dependency. We might sketch out a few calculations and establish that, today, each bee is worth (depending on specific location) between £1,000 or £8,751 to our local economy - but as they tend towards extinction, what value then? And will this really modify our behaviours within a capitalist system - a system that has the sole purpose of accumulating and concentrating money?
Are we looking through the right lens?
We might wonder if we are looking at this issue through the right lens? Instead of getting the natural world to fit within our man-made economic paradigm, perhaps we should put the horse back in front of the cart, and develop an economic model that better aligns with and supports our natural world? Are we somehow missing the point?
David Korten, author and Co-chair of the New Economy Working Group in the US, gets to the real heart of this debate - when he asks, 'What is money any way?' In helping us think this one through, Korten urges us to recognise the difference between real living wealth and phantom financial wealth - a very interesting and insightful division - and worthy of much reflection.
Money, he reminds us, is simply a number entered on an accounting ledger; it has no intrinsic value, and can disappear in an instant, as we have all seen during and since the financial crash - our shares and pension funds are now worth less than they were, apparently. We all know that money was originally intended as a means of exchange, but in many cases it has now become the end goal.
A focus on real wealth?
Real wealth, on the other hand, has intrinsic value - whether utilitarian, artistic or spiritual value. We can think about fertile land, healthful food, knowledge, productive labour, pure water and clean air, or physical infrastructure - that all add utilitarian value, each day.
We can also recognise the most important forms of real wealth: healthy, happy children, loving families, caring communities, a beautiful, healthy, natural environment - all these elements are arguably beyond price.
Perhaps we should re-design our economies (and our lives) with real wealth in mind? More work is needed in developing an appropriate view of what 'capital' means, in terms of living wealth within a paradigm of sustainable economy.
This might go as far as changing our whole system of money - to one that can direct money to where it connects underutilised resources with unmet needs, and will provide jobs for everyone seeking employment - an economy working for the people, as well as the planet.
Pragmatism and beyond...
It may be that the approach proposed for integrating Natural Capital is completely the right way to go. It may be that, despite any limitations, it presents a pragmatic expedient, to get the incumbents in the world of business and economics to adopt a more holistic approach and start valuing - if not fully appreciating - our natural world and thereby modifying their behaviours towards more sustainable business decisions. After all, with the right standards in place, then businesses will have to act in a more holistic and responsible manner.
Or, it may be just missing the point. Rather than trying to force an artificial marriage between the real natural world and the man-made construct of capital, should we perhaps put more energy into solving the more fundamental need for a new paradigm, where the primary purpose of business is to serve life? Money and profit are a means, not an end purpose. And, as the late Ray Anderson - founder and former chair of Interface Inc - put it, "Business generates profit to exist; it exists to serve a higher purpose." Perhaps we should rather go inside ourselves and connect with that higher purpose first? Real wealth in a living economy will surely follow.
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We are delighted to share more on the drive towards a better economic paradigm, through our new Paper, A Journey in Search of Capitalism 2.0 our Sustainable Economy Project website and Facebook page.