Why Dow is Putting Nature on the Balance Sheet

Today's announcement by Dow Chemical that it will launch a multi-year effort to measure and track the business value of ecosystem services represents a small step for a company, a giant leap for critters of all kinds.

Dow isn't the first company to make the link between the services nature provides and their value to a company's bottom line. But its new initiative -- a five-year partnership with The Nature Conservancy -- goes beyond the academic. Its aim is to create a set of tools and methodologies other companies can use to integrate the economics of ecosystem services in business decision-making.

For the uninitiated, ecosystem services refers to the $33 trillion or so worth of "free" deliverables provided to us by a healthy planet, including clean water, breathable air, pollination, recreation, habitat, soil formation, pest control, a livable climate, and a bunch of other things we generally take for granted. As I've written about for years (see here, here, here, and here), such benefits aren't valued by companies, since they don't directly pay for them; they don't appear on a company's balance sheet. But that doesn't mean they aren't critical to a company's financial future.

Ecosystems have value, when you consider what a company would have to pay to replicate their services if they weren't otherwise available. And as ecosystems get stretched and diminished -- whether by human activity, changes in climate, or natural cycles -- they can impinge not just on profits, but a company's very ability to operate.

Under the agreement announced today, Dow and TNC will work together to examine how Dow's operations rely on and affect nature. The aim is to advance the incorporation of the value of nature into business, and to take action to protect the earth's natural systems and the services they provide business and society. One key objective is to share all tools, lessons learned and results so that other companies, scientists and interested parties can test and apply them.

Dow and its foundation are committing $10 million to this collaboration over the next five years.

What's going on here? Why has this venerable chemical giant suddenly decided to put a price tag on nature?

"We have been on a sustainability journey for close to 20 years," Neil Hawkins, Dow's Vice President, Sustainability & EH&S, told me last week. "We had our first set of sustainability goals that ended in 2005. We're halfway through our 2015 sustainability goals. They're very focused on some of the areas you'd expect -- EH&S performance, the whole life-cycle of our products, and delivering products that actually help the world solve major challenges.

"But the one area that we don't explicitly address is ecosystem services and biodiversity. It's an area we felt we needed to get better in. We have a long history in conservation, and probably have done as much conservation as most companies. But we needed a thoughtful, economic approach that builds directly into our business decision-making the value of nature to Dow -- be it water, wetlands, forests, etc. And also the value we're providing, because we have a lot of land holdings and a lot of facilities worldwide."