Expert insight

Picture of Hannah Tranter

Hannah Tranter
University of Cambridge Institute for Sustainability Leadership

Doing business with nature: safeguarding industrial systems from environmental degradation

Alongside evolving consumption patterns, competition for productive land and the degradation of natural resources, climate change has resonating impacts on today’s corporate world. When exploring the vulnerability of business to these growing pressures, and its responsibility to respond, emphasis is often placed on the agri-food sector.

Agriculture is commonly highlighted as the biggest contributor to global warming, the thirstiest user of water supplies and a dominating driver of biodiversity loss. However, natural resource challenges extend far beyond agribusiness; although not always apparent, the future growth of a great number of companies depends on a healthy and sustained supply of nature’s goods and services, otherwise known as ‘natural capital’.

Natural resources are decreasing at an alarming rate.

Natural capital and the business bottom line
There are harsh economic consequences to this: the total annual economic cost of biodiversity loss and ecosystem degradation is estimated at up to 7.5 per cent of global GDP. Natural capital is rarely accepted as influencing the business bottom line, yet its degradation threatens cashflows and business stability and can have unprecedented effects on supply chains: raw material supply disruption, yield plateaus, regulatory constraints and volatile operational risks to name a few. For example, globally, only half of soil nutrients used by crops are replaced, thereby having major consequences for company productivity.

While 68 per cent of Global 500 company respondents reported that water related issues pose a substantive risk to their business, the reality is that these water risks, along with relatively undefined biodiversity and soil risks, need to be considered by all businesses expecting to uphold resilient supply chains and systems.

All businesses depend upon natural resources and both degradation and scarcity will fuel competition. In the UK alone, up to seven million hectares of extra land will be required by 2030 to meet a growing population’s food, space and energy needs, while increasing area dedicated to enhancing natural capital. This could lead to a two million hectare shortfall in land if not managed sustainably.

Commercial drivers can protect nature
Forward thinking business leaders from the Natural Capital Leaders Platform are asserting that there are a number of commercial drivers for protecting natural capital and the environmental foundations that underpin business operations. Their views are featured in the Cambridge Institute for Sustainability Leadership (CISL)’s report Doing business with nature. These drivers include decreasing costs through reduced long term input costs, reducing risks through sustainable supply chains, enhancing brand and organisational reputation, and generating revenue growth.

Members of the Natural Capital Leaders Platform recognise the arguments to safeguard natural capital and are making steps in the right direction to address challenges around water, biodiversity and soil degradation. This includes investing in adequate stewardship and infrastructure as well as considering interdependencies to alleviate pressures on one single resource.

For instance, rather than further encroaching on high quality land and biodiversity, companies are investing in appropriate soil management by assessing inputs to boost yield, exploring partnerships to maintain ecosystem processes, and examining innovative ways to treat waste products to actually increase income. They concede that the sustainability narrative has altered and that there is now a need to extend beyond simple reputational gains towards exploring deep rooted issues. With CISL they are sharing best practice and collaborating to develop new strategies, metrics and innovative thinking to protect natural capital.

They also acknowledge that there are still important business knowledge gaps and barriers to implementing solutions at scale. Unfortunately, not all companies have come quite so far on their natural capital journey; therefore, the government needs to take on a key role in levelling the playing field through legislation and providing clear direction on priorities and the supporting policy regimes.

Industry needs a natural capital strategy
Industry requires clarity on the current and future status of natural resources if it is to make sound decisions and investments. To both inspire and empower change, there is a need for regulatory implementation, fiscal changes, industry engagement, research investment, information dissemination and education promotion.

The UK government’s independent advisory body, the Natural Capital Committee, has warned that the decline of England’s natural environment is harming the economy. It has also underlined the value of a 25 year investment plan. Businesses, alongside the government and civil society, have a fundamental role to play in this. In the absence of any structured government vision and direction, industry needs to take a leadership position in developing natural capital strategies.

Investing in management strategies that place natural capital impacts and dependencies at the core of operational decisions is vital. Today, more than ever, natural capital should be prioritised on corporate agendas; industrial sectors need to be doing business with nature if we are to secure the resilience of existing production systems.