The recently released Natural Capital Protocol promises to give business a new appreciation of the ecosystem services on which they rely.

According to Paul Jorgensen, environmental scientist at SRK Consulting in South Africa, the protocol offers a standardising framework for organisations to identify, measure and value their impacts and dependencies on natural capital, therefore creating new opportunities for value creation.

“Natural capital is really the foundation of our economies and societies, as it encompasses and enables the other four capitals: social, human, manufactured and financial capital,” Jorgensen said. “This is why some of the world’s largest companies, such as Coca-Cola, Dow, Nestlé, Shell and Tata, are members of the Natural Capital Coalition, which generated the protocol.”

What is natural capital?

This can be defined as any stock or flow of energy and material that produces ecosystem goods and services. Natural capital includes resources in the form of renewable and non-renewable materials, sinks that absorb, neutralise or recycle wastes, and processes such as climate regulation.

Jorgensen describes the protocol as a framework that helps business to practically focus on the natural capital inherent in the surrounding environments, allowing a closer integration of sustainability thinking into business missions and strategies.

“For instance, while mines are generally familiar with the impacts they have on the environment around them, most do not really appreciate how dependent their operations are upon the ‘services’ this ecological infrastructure provides,” he said. “By nurturing this natural capital with appropriate strategies, there is also more scope for them to benefit financially and lower the costs of their built infrastructure.”

Water is a good example of a key risk on many mines, and substantial expenditure is made on securing sufficient quantities and qualities of water on site, he said.

“Employing the framework in the Natural Capital Protocol opens the door to better informed decision-making that reduces risk and highlights opportunities for business,” he added.

Member companies of the Natural Capital Coalition are working to conserve and enhance natural capital by ensuring sustainable practices, not just in-house, but throughout their respective value chains.

Sustainability practices in mining are increasingly being incorporated into these value chain approaches to risk management, along the lines already being pursued by the electronics and apparel industries.

Samsung prevents use of conflict minerals

In line with this approach, Electronics giant Samsung has put its weight behind the Electronics Industry Citizenship Coalition to bar the use of conflict minerals in all of its products – and to ensure that its suppliers do the same.

It pointed to human rights violations and environmental degradation caused by mining in Africa’s conflict zones and Indonesia’s Bangka Island in particular.

Protocol’s governance-related element

The natural capital approach also has an important governance-related element, which is already being applied in certain African countries as part of the 2012 Gaborone Declaration and other United Nations-led initiatives.

“The Gaborone Declaration attempts to address the failure of the historical pattern of natural resource exploitation to promote sustainable growth, secure environmental integrity and improve natural capital in Africa,” Jorgensen said. “Significantly, the declaration also aims to quantify the contribution that natural capital makes to sustainable economic growth and social capital, and it wants to see this contribution integrated into development and business practice.”

In response, a number of countries including South Africa, Botswana, Ghana and Mozambique have committed to incorporate the value of natural capital in public and private policies and decision-making.

In a similar vein, the Wealth Accounting and the Valuation of Ecosystem Services is a World Bank-led global partnership promoting sustainable development by ensuring that natural resources are mainstreamed in development planning and national economic accounts.

“As governments increasingly recognise the importance of natural capital stocks, flows and accounting, it is likely that the approach will soon filter down to regulations that require the private sector to monitor and report in these terms, much in the same way as has already happened with greenhouse gas reporting,” he said.

Jorgensen added that these standardised approaches allow companies to identify risk and opportunity more easily, and enable proactive management of their natural capital dependencies and impacts.

Partnership benefits of natural capital

Jorgensen said the adoption of natural capital accounting can also facilitate partnership development, where better management of natural capital can result in mutual benefits between collaborating companies and institutions.

The protocol proposes that natural capital assessments be based on four principles: relevance, rigour, consistency and replicability.

“Relevance ensures that you consider the issues that are most material for the business and its stakeholders, while rigour means using technically robust information and data, as well as methods are fit for purpose,” he said.

“It is also important that the data and methods are compatible and consistent; the replicability of the process is based on assumptions, data and methods that are transparent, documented and repeatable – to allow verification and audit.”