A key milestone was reached this summer with the launch of the Natural Capital Coalition’s Natural Capital Protocol. Helen Dunn explores the protocol in more depth including next steps.
The Protocol is “a standardised framework to identify, measure and value direct and indirect impacts (positive and negative) and/or dependencies on natural capital”. The aim of the Protocol, (targeted at the business sector), is to provide a harmonised approach that can be applied internationally. This approach recognises that businesses operate differently across industries, geographies and cultures, and the need for a framework that can be widely accepted and applicable to business of all sizes, and in all locations.
Two sector guides have also been published – food and beverage and apparel. These sector guides are companions to the Protocol framework, and provide information on the key impacts, dependencies and challenges, as well as practical examples to demonstrate sector-specific business applications.
Valuation – defined in the Protocol as importance, worth or usefulness – lies at the heart of the Protocol framework, and provides a means to assess the ‘materiality’ of impacts and dependencies on natural capital.
For example, a business using water in a manufacturing process might measure the cubic meters of water extracted, but this does not explain the value or significance to the business, society or the environment more widely. Further steps are required to understand the impacts on natural capital that result, and to value the consequences for stakeholders – are stocks of water likely to remain at the necessary levels to meet current and future user needs if this action continues at current levels? A company operating in a water-stressed location may cause an impact of far greater cost to other stakeholders compared to where there is an abundance of water, while placing their operations at risk if stocks drop below what is necessary to operate successfully.
The Protocol divides the framework into 9 key steps and 4 main stages: the ‘why’, ‘what’, ‘how’ and ‘what next?’. One of the key strengths in the Protocol is that while there is a focus on ‘how’, in terms of measuring and valuing, the framework recognises the importance for the business of getting the decision context right, and the scope of the assessment clear; this will help to ensure that the results from any assessment have the best possible opportunity to achieve impact and lead to action in practice.
This is not valuation for its own sake, but is looking to add value to business decision-making. In the long-term, the objective is to integrate natural capital approaches into core business decision making policy, influencing operational strategies.
The Protocol highlights three components of a natural capital assessment: business dependencies – the benefits to the company from natural capital (e.g. use of clean water supply, natural flood protection); impacts on society – societal costs and benefits associated with a company’s use of natural capital; and impacts on business – these are as a result of business impacting on natural capital and are those that affect the financial bottom line such as environmental permit costs. By including both impacts and dependencies, this ensures all the links to commercial value and risk can be systematically explored.
While valuation lies at the heart of the Protocol, this does not mean that valuation equals monetisation. In the context of the Protocol, valuation can be qualitative, quantitative or monetary, and indeed in the framework steps there tends to be a natural progression in terms of building evidence on value through these stages. Valuation in all these forms can help to make the case for protection and enhancement of natural capital in business. However, it is recognised that where appropriate, the use of monetary metrics can be effective for influencing the case for change in business decision making, although this value is not to be confused with a ‘price’.
Another key strength of the Protocol is the central feature given to piloting by businesses. Around 50 businesses piloted and reviewed the draft Protocol, with 10 companies undertaking ‘deep-dives’, covering a broad range of business sectors and different geographies. A consultation on the draft Protocol received over 3,200 comments from over 450 organizations.
CISL published its main pilot findings in July 2016: “Business insights – pilot testing the natural capital Protocol”. The response from pilot companies has been positive. Piloting the Protocol provided the opportunity for many pilot companies to take a systematic approach to evaluation of environmental impacts for the first time, including generating new understanding of dependencies, which many companies felt had been neglected. Overall, in terms of ‘impact’, many of the pilot companies noted that piloting the Protocol helped to give them much more confidence around application of natural capital to their business, as well as increased engagement with stakeholders.
One of the key learnings that pilot testers identified was the need for a lot of data, not always easy to obtain, especially in global supply chains where many organisations have relatively little control. Overall, 70% of pilot tester respondents recommended that other businesses should adopt the Protocol.
So what’s next? The Natural Capital Coalition has four work streams going forward: exploring issues around data, developing more sector guides, looking at the enabling environment, (including barriers for uptake of natural capital in decision making), and finally advocacy to provide a clear understanding of the benefits of incorporating this approach.
A key part of this is to encourage uptake of the Protocol through a new Protocol Application Program (delivered by CISL), to support businesses in generating case studies to encourage further uptake, and by developing a Protocol Toolkit alongside WBCSD.
Building good examples of implementation in the business sector was seen as a particular need by participants of the NCI summit on “valuing our life support systems” in 2014, and this remains the case. Bringing together the science, business and policy communities will also be critical in order to ensure sustained progress.
The NCI have already identified a number of areas where they can play a supporting role in the implementation of the Protocol, including around data requirements and specific sector discussions. In terms of broader business awareness of the links to natural capital it is still early days, which is why it is particularly important now to maintain the momentum from the protocol launch.
Helen Dunn, an environmental economist, recently joined the NCI steering group. Helen is a former senior economic adviser in Defra and has worked closely with the Natural Capital Coalition including as a member of the steering group for the development of the Natural Capital Protocol.
The Protocol will be discussed further at the NCI and CIRIA joint meeting Beyond concepts: Natural capital tools for the UK construction industry. BOOK NOW for your free place.