More and more companies are starting to consider the value of water and other natural resources in making business decisions, such as facility siting. A framework for assigning financial value to natural resources – called natural capital accounting – is developing to give companies a better picture of risk, ensure their future social license to operate, manage or lower operating costs and provide a competitive advantage.
A recent report from the Bureau of National Affairs (BNA) said efforts to establish standard methodologies for natural capital accounting are still in the early stages. Companies often work with environmental organizations to assign a monetary value to natural resources, such as clean water, in addition to the direct cost of the resource, and then use these calculations in making business decisions. The groups also help companies determine which projects – such as improving agricultural practices, conserving local water resources, or planting trees – return the most water to watersheds.
Water funds, water replenishment and reforestation practices are also employed to restore natural systems, and the practices enable companies to maintain their reputation in the local community. To protect freshwater supplies, a MillerCoors supplier in Idaho is creating best practice farming techniques that conserve water without impacting productivity. Dow Chemical Co.’s largest U.S. facility is located on the Gulf of Mexico where drought causes the company to improve its climate change forecasting and partner with local policy makers and upstream agricultural uses to ensure a continued water supply. To combat saltwater contamination of water supplies by storm surges, the company is building a levee and investing in maintaining wetlands.
While 24 companies agreed at the U.N. Conference on Sustainable Development in June 2012 to develop a methodology for natural capital accounting, the practice is in the innovation phase. The Natural Capital Project, a partnership of the World Wildlife Fund, The Nature Conservancy, the University of Minnesota and Stanford University, has developed accounting methods some companies are beginning to use to make decisions about natural capital.
This article is based on extensive report on natural capital accounting that appeared in the May 8, 2013 issue of BNA’s Daily Environment Report, “More Companies Assign Dollar Value To Natural Resources in Business Decisions” by Avery Fellow.