Valuing Nature in Business-A Case Study of Chemical Manufacturing and Forest Products Industries

Abstract

Over the past several decades, there has been an increased realization of the extent to which the means of production in human society depend on and impact increasingly fragile natural systems. Working with our client, The Nature Conservancy, we researched trends in ecosystem valuation within the chemical manufacturing and forest product industries, discerning ways to identify and evaluate future ecosystem investment opportunities. This research resulted in a framework that businesses could use to identify future ecosystem service opportunities and then score the opportunities’ business values using a multi-criteria analysis approach. We identified potential ecosystem service opportunities by overlaying classifications of business risk on major operational subsectors within the industries, populating the resulting table with key ecosystem impacts and opportunities. Through the application of this process, we identified three hypothetical ecosystem service projects applicable to both the chemical manufacturing and forest product industries and used them to test our scoring framework. The identified projects were constructed wetlands for wastewater treatment, coastal habitat protection for storm surge protection, and forest carbon sequestration. We ranked the business value of each project using five criteria important to businesses: financial value, reputational benefits, environmental risk reduction, political and regulatory enabling conditions, and level of knowledge and activity in the field. According to our research, businesses emphasize financial benefits most highly when evaluating potential investments, so we weighted financial values most heavily in our ranking scheme. Our analysis indicated that a forest carbon sequestration project had the highest potential business value relative to the other project types due to its higher expected financial benefits. The constructed wetland project, which also had a relatively high expected financial benefit, followed second. Finally, the coastal habitat protection project had the lowest relative business value due to high costs, a low level of scientific knowledge, and weak regulatory support. The identification and ranking methodologies are designed to be flexible, allowing adaptation for use given varying business objectives. The weights on the five valuation criteria can be adjusted to reflect a business’s concerns. This scoring methodology is useful for businesses because few tools exist to enable comparative analysis of business ecosystem service investments. We believe this tool provides a useful approach to determining the value that nature and ecosystem services provide to a wide range of businesses, and we recommend its application outside the chemical manufacturing and forest products industry for further refinement.