The Business Case for Nature

Spring 2013

The Business Case for Nature
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Sustainability efforts may be a matter of survival, both corporate and human.

By Mark R. Tercek and Jonathan S. Adams

Business Case for Nature

Mark R. Tercek is president and CEO of The Nature Conservancy and a former managing director at Goldman Sachs. Jonathan S. Adams is a science writer and conservation biologist. Adapted from Nature’s Fortune: Why Saving the Environment Is the Smartest Investment We Can Make, available from Basic Books, a member of the Perseus Books Group. ©2013

Working in cities seems foreign to many environmentalists, and working with global corporations may seem even more so. Corporations such as Dow Chemical, Shell Oil, or mining giant Rio Tinto have huge environmental footprints—why work with them? But shouldn’t we try? The bigger the company’s footprint, the bigger the opportunity for the company to reduce its impact on the environment by changing its behavior.

Even companies leading the way on sustainability still have a long way to go.

In many of the places conservationists want to protect, the underlying threat is human demand for food, energy, space, and water. Companies are the agents for this demand. Customer demand pushes companies to build more roads and other infrastructure, expand agricultural lands, and extract more minerals, oil, and natural gas. Simply ignoring these trends would only put the planet in greater peril. Likewise, just saying no to these companies and their customers is unlikely to be a successful strategy.

Instead of saying no, what if environmentalists ask “how”? How might these companies change their practices to achieve better environmental and business outcomes? How might government create incentives for companies to invest in and protect nature rather than degrade it? Asking how can change the way people think in important ways and deserves to be thoroughly explored.

No Guarantees in Nature

Of course, some CEOs may superficially support environmental causes simply to achieve good PR—a practice called greenwashing. But in today’s ever more transparent world, that should be easy to avoid.

Even if some greenwashing continues, most business leaders increasingly understand that the main drivers of environmental action go far deeper than good PR, regulatory compliance, or even a desire to “do the right thing.” Sustainability is moving from a fringe concern to a core focus of business decision-making. Conservation helps companies manage risks to their supply chains, keep costs down, identify new market opportunities, and protect essential business assets. Likewise, employees and customers today strongly prefer companies whose values align with theirs. Smart environmental strategies are an essential way to achieve such alignment.

The breakthrough insight is when companies recognize that the services they rely on from nature but heretofore took for granted and got for free, such as clean water and flood protection, will be neither guaranteed nor free in the coming years.

For example, in 2011, Dow CEO Andrew Liveris challenged The Nature Conservancy to help the company apply the concept of natural capital to his company’s business decisions and operations. He and his team wanted to answer the following questions, again focused on how: How do Dow’s operations both affect and depend on nature’s services? How would the natural assets that generate such services be accounted for on the company’s balance sheet? How vulnerable are those services, and what might Dow do about those vulnerabilities—either on their own or by joining with other stakeholders to influence natural-resource policy? How do such services also benefit the community? Would Dow’s engagement in these issues have a ripple effect on other companies? The project that will attempt to answer these questions, now well under way, is a promising example of how the concept of natural capital can help change the way business is done.

Collaboration does not mean that companies should expect a free pass from environmentalists. Even companies leading the way on sustainability still have a long way to go. Some honest attempts between environmentalists and companies to collaborate will no doubt prove disappointing. When that happens, we should tell that story as well.

Helping companies that have big footprints and enormous influence in the market to make better decisions and understand the value of nature has the potential to create real conservation gains.business3

Staking Your Career on a Wetland

In 1996, regulatory pressure at a chemical plant in Seadrift, Texas, dictated a need to increase the facility’s water-treatment capacity. Engineers usually design such operations conventionally. For engineers, the first, second, and third options all generally involve pouring large amounts of concrete. So in Seadrift, the company assumed that it would build a water-treatment plant, at a cost of about $40 million.

One engineer at Seadrift had other ideas. Perhaps he knew how New York had saved millions on water treatment; perhaps he had kept up with the academic literature on green infrastructure; perhaps he was simply clever. Whatever the reason, something prompted this engineer to make a bold move. He staked his career on an unconventional solution: constructing a wetland.

Rather than pour the concrete, the company built a wetland next to the manufacturing plant. The engineer’s colleagues likely thought him nuts at first. But instead of spending $40 million on a conventional treatment system, the company spent $1.4 million on an unconventional one. Now the wetland treats 5 million gallons of water per day, meets all regulatory standards, and—a bonus for nature—provides habitat for a variety of wildlife.

The basic principles at work in Seadrift are familiar: Consider the value of both green and gray infrastructure, and invest appropriately. But there are two big differences here. The first is the company involved. This was no ordinary chemical manufacturer: The company that owns the Seadrift plant is Dow, the world’s second-largest chemical manufacturer.

The second difference is that plant management did not base the project decision on a law or regulation; or out of a desire to avoid a particular risk, such as a flood; or because the company depended on a particular resource, such as water; or because the company wanted good PR. Simply put, the engineer’s decision was just good business. He weighed the options, examined the pluses and minuses, and decided to invest in nature.

The consequences of that decision are far from simple. Dow’s products are ubiquitous but largely unseen by consumers, ingredients in everything from building materials to pet food. Dow’s facilities consume vast quantities of water, so it owns large amounts of land along rivers and on coasts. The company makes dozens of products that would be toxic or otherwise harmful to people, the environment, or both if accidentally spilled or released.

In short, Dow has an enormous environmental footprint. It also has enormous market share and a global brand. Those factors combine to make Dow a promising partner for conservation. Companies pay attention to one another, particularly their competitors within industrial sectors. If a large and globally recognized company like Dow changes its environmental behavior and improves its business as a result, other companies are likely to follow Dow’s lead.

Corporations benefit when they understand their dependence on nature. Many forward-thinking companies—among them 3M, DuPont, General Mills, Caterpillar, and Dow—already know this. The depth of the change in perspective this entails should not be underestimated—it is fundamental. For generations, economists assumed that manufacturers could run down natural capital as much as they wanted, so long as the economy overall created enough manmade capital to replace it. When the scale of economic activity remained small in comparison to the scale of the planet itself, this may have been a workable assumption—but not anymore.

"How would the natural assets that generate such services be accounted for on the company’s balance sheet?"

As companies begin to better understand this dynamic, they are seeing opportunities for new products and markets. A clearer vision of the importance of nature to businesses also points to ways to decrease environmental, legal, and social risks. But the real payoff comes when corporations include the value of nature in all of their business decisions. Then, billions of dollars in economic activity can become an engine for the conservation of nature rather than its destruction.

Dow’s Effort to Value Nature

The evolution of Dow’s approach to these issues shows how far the corporate world has come. The company’s first set of ten-year environmental goals in 1995, while admirable in many ways, mostly looked inward and focused on improving the company’s environmental, safety, and health performance. No real surprise there. This was an incremental step, not a revolutionary leap.

With its next set of ten-year goals in 2005, Dow began to look beyond its walls to see how it could contribute to solving bigger problems than its own safety and environmental record. In 2010, halfway through its latest ten-year goals, Andrew Liveris asked VP Neil Hawkins, who began at the company as an engineer and rose to head its sustainability efforts, to review the goals and identify the biggest gaps. Hawkins—showing how a bold corporate sustainability officer can make big changes—concluded that the company, which had an admirable conservation ethic around its facilities, had taken few steps beyond its own concerns to give tangible form to its stated value of protecting the planet.

That brought Hawkins and Dow to a crucial moment. How would the company move forward and embed environmental values into changing the way it made decisions? Scientific evidence on the value of nature to a company such as Dow may be clear and the economic arguments compelling. However, that evidence and those arguments will not carry the day until they serve as the basis for useful business tools, strategies, and policies. That is the challenge for Dow, for other corporations, and for the conservation community.

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