Red light for UK business on green issues

• Landmark UN study of the economic impact of biodiversity loss launched in London;
• PwC analysis shows less than one in five companies, including many UK household names, see biodiversity as an important business issue;
• Only two out of the world's largest 100 companies manage it as a strategic risk;
• UK business warned on emerging trends and key areas for focus to identify their risks and role;
• Threat is larger, and more current to business, than climate change.

The UK's embedded and unconscious dependence on environmental resources, largely unaccounted for and unvalued in market terms, will mean no sector or business will escape unaffected by changes to the availability of environmental goods and services said PwC today, 13 July 2010.

Nature is going to bite back - be ready for it

Speaking at the launch of a landmark UN study into the economic impact of biodiversity and ecosystem loss, PwC, who contributed analysis on business perceptions of the risk posed by biodiversity loss to the report, said that UK business needed to prepare for Nature biting back.

Business blind spots on future consumer behaviour, reporting, valuation and regulation are already emerging. Unpredictable pricing and supply chain scenarios made business action on environmental conservation "the economically rational thing to do."

The two-year study, The Economics of Ecosystems and Biodiversity study (TEEB), led by the UN Environment Programme, examines the economics of biodiversity and ecosystem loss for business, with a global economic impact of biodiversity loss estimated at between US$2-4.5 trillion (about R15-34 trillion) annually, up to 7.5% of global GDP.

Water used in food and drink production, timber for packaging, furniture and paper, productive land for fruit and vegetables, and fibres for clothes, are amongst just some of the biodiversity and ecosystem 'services' whose economic value and protection is examined in the study.

The study indicates that scrutiny of big business and its impacts on the world's 'natural capital' is likely to intensify as better evaluations and assessments come to the fore. Emerging valuation, pricing models and market mechanisms based on ecosystems, similar to carbon market mechanisms, will make businesses' strategic planning around the conservation of environmental resources "unavoidable" said PwC.

Start thinking about ecosystems as an extension of your asset base

Jon Williams, partner, sustainability and climate change, PricewaterhouseCoopers LLP said: "The UK's access to, and use of environmental resources in locations from local farms in Suffolk to rainforests in south America, is like an international warehouse of assets that no-one has priced or got an inventory on. Businesses need to start thinking about ecosystems as an extension of their asset base, part of their plant and machinery, and appreciating the value they deliver. "

Despite the potential impact, research by PwC for the TEEB study, found that of the world's largest 100 companies - including many UK household names - only two see biodiversity loss as a strategic business risk. Only 18 companies made any mention of biodiversity or ecosystems in their annual report. In high - dependency or impact sectors including food producers and primary industrial sectors, nine identified it as a key sustainability issue.

Regional differences in business perceptions of the threat are also stark. Over 50% of CEOs in Latin America and 45% in Africa see declines in biodiversity as a challenge to business growth. In contrast, less than 20% of their counterparts in Western Europe share such concerns, dropping to 15% in the UK.

It's not just about environmentalists and scientists

Malcolm Preston, CEO, sustainability and climate change, PricewaterhouseCoopers LLP said: "Current business strategies and plans in the UK are biting the hand that feeds stable consumer prices, business prospects and long-term investor security and returns.

"When estimates in the study put economic impact of biodiversity loss at between $2-4.5 trillion annually, you realise that this is not just about environmentalists and scientists, but economically rational conservation that protects the long-term prospects for business.

"That means putting more value on the resources that supply and sustain UK business, including companies and projects the financial services sector is investing in."

Focusing in on issues for UK companies ranging from SME suppliers to large corporate, to international financial services companies and pension investors, contributors from PwC to the UN study highlighted five potential blind spots for UK business to focus on:

1. Possible changes in corporate reporting to recognise resources that are material to the business's future, that will require auditing and assurance
2. Unpredictability in supply chain pricing and availability, with knock on affects for consumers of price rises and product availability
3. Consumers disregarding products that do not take ethical and environmental considerations into account
4. Investors expecting more data, and factoring in more value for resources that supply and sustain businesses and funds they are investing in
5. New environmental regulations, tax and subsidy reforms as new analysis gives governments better valuation and pricing measures for biodiversity; the introduction of new markets such as UK based habitat banking or other environmental market mechanisms.

'We're effectively in an environmental recession'

Jon Williams, partner, sustainability & climate change, PricewaterhouseCoopers LLP said: "The study is establishing a base line on the scale of the issue globally, and demonstrates how far business and consumer engagement is going to have to come to cross it."

"We're effectively in an environmental recession for which few businesses appear to have a real accounts or a recovery plan. Identifying and managing the risks that arise from our impact on biodiversity in the UK is not about greenwash, or CSR, it's about the economics and security of supply and demand, and in a shorter time frame than climate change."

Notes:

1. PwC is reputed to be the only professional services firm making a significant technical contribution to the UN's major study on The Economics of Ecosystems and Biodiversity report for business. A number of PwC specialists have performed supporting analysis and are co-authors in the report. The report interprets current evidence and trends, highlight risks and opportunities for business related to biodiversity and ecosystems.
2. Today's report, entitled TEEB for Business is part of a suite of reports being launched in the UN's International Year of Biodiversity, calling for companies to embrace concepts such as 'No Net Loss'; 'Ecological Neutrality' and ultimately 'Net Positive Impact' on the environment.
3. The TEEB for Business report, which will form part of a final TEEB synthesis report to be launched at a meeting of the Convention on Biological Diversity in Nagoya, Japan in October 2010, and calls on professional associations to develop new accounting and reporting tools for business. The TEEB for Business report is available at www.teebweb.org
4. The total annual economic cost of biodiversity loss and ecosystem degradation was estimated to be between US$2 and US$4.5 trillion in 2008, or 3.3 - 7.5% of global GDP.
5. The lead authors and editors of the TEEB for Business report include staff from Business for Social Responsibility (BSR), Earthmind, the Global Reporting Initiative (GRI), PricewaterhouseCoopers LLP (PwC), the International Union for Conservation of Nature (IUCN), the United Nations Environment Programme (UNEP), and the World Business Council for Sustainable Development (WBCSD).
6. The survey of CEOs and their attitudes to biodiversity loss was carried out by PricewaterhouseCoopers LLP. For more information see www.ukmediacentre.pwc.com/News-Releases/Biodiversity-threat-will-eclipse-climate-change-economic-impacts-but-still-misses-CEO-and-valuations-radar-PwC-study-e9b.aspx
7. The World Economic Forum identified biodiversity as one of the most interconnected global business risks earlier this year. Estimates for the severity of impact of related risks in dollar terms ranged from tens of billions for inland flooding and infectious disease, to many hundreds of billions for food price volatility and chronic disease.
8. Examples of the economic cost of loss of biodiversity and ecosystem services for the agricultural supply chain (Sources include: UN, US Treasury, DECC, TEEB, EB Barier, PwC)
a. 46% decline in Australian agricultural income caused by the 2002/3 drought.
b. 1.5 billion hectares of cropland was abandoned due to soil erosion.