How companies can integrate ecosystem services into due diligence

How companies can integrate ecosystem services into due diligence

Even though a relatively small group of companies currently consider their impacts and dependencies on ecosystem services, such an approach has become part of international best practice.

The reason is simple.

Since January 2012, leading financial services and lending institutions—such as the World Bank Group’s International Finance Corporation (IFC) and the Equator Banks—now require that preapproval due diligence consider corporate impacts on ecosystem services, within the IFC’s Performance Standard 6 and the Equator Principles.

In addition, the issue is gaining the attention of governments around the world. Sixty-eight countries have explicitly named ecosystem services as an issue on which they are working. And some are formulating policies to address these, as detailed in a recent BSR report on the public sector uptake of ecosystem services concepts and approaches.

The private sector is also engaging with these issues. For example, 47 multinational companies have explicitly named ecosystem services an issue that they are either exploring or working on. Some even are integrating it into their corporate policy, as a recent BSR report. detailed These corporate activities cover a broad range. Some companies have crafted corporate policies of “no net impact” or “net positive impact” on ecosystems or ecosystem services. Other firms are placing monetary values on natural capital and ecosystem services. Still others are embedding ecosystem services into corporate management systems. The takeaway is that companies are now considering a broader range of environmental issues, including those related to the functioning of ecological systems.

As the private sector increasingly considers the structure and function of natural systems—and the flow of ecosystem services, key questions around how to assess impacts remain. Most notable are the questions of:

  • How should my company assess ecosystem services impacts and dependencies in business decision-making processes?
  • Are there rigorous, feasible methods that will result in relevant insights on business risk and opportunity?
  • Do these methods mesh with existing corporate methods for conducting impact assessments or assessing risk (such as those based on reputational risk, creditworthiness, or other forms of risk at the project level through the enterprise level)?
  • What is the emerging state of practice in applying these methods and conducting an assessment of a company’s (or facility’s) impacts and dependencies on ecosystem services?

To help businesses apply ecosystem services concepts, a growing set of analytical tools and approaches have emerged over the past several years. For example, methods for enterprise-level risk review include the Natural Value Initiative’s (NVI) Ecosystem Services Benchmark (ESB), which asks whether key processes are in place. Additional methods exist to identify key ecosystem services impact areas, such as the World Resource Institute’s (WRI) Corporate Ecosystem Services Review (ESR), as well as dozens of other tools, analytical methods, and databases relevant for more granular assessment of corporate ecosystem services impacts, as detailed in a BSR report published earlier this year. This proliferation of methods presents businesspeople with the question of which analytical approach to apply and why they should choose one over another.

In response to this often confusing state, BSR convened thought and practices leaders—through our Ecosystem Services Working Group annual roundtable—to explore the emerging state of business practice on how companies can assess their impacts and dependencies on ecosystem services. The resulting “snapshot” of the current state of corporate practice on integrating ecosystem services into corporate assessments are summarized in a new working paper from BSR .

Specifically, the paper presents an overview of the current components used to conduct corporate ecosystem services impact and dependency assessments. This focus on various components of undertaking an ecosystem services assessment is due to the reality that many companies already have detailed risk assessment protocols—and few are seeking more new processes. Adding new components to existing processes tends to have more appeal for many businesspeople. It is also more practical given the wide range of issues and contexts across industries, companies, and project types.

The key components of a corporate impact and dependency ecosystem services assessment that leading practitioners highlighted, through BSR’s research process, as key to ecosystem services assessment processes include:

  • Screen to determine whether a detailed ecosystem services impact and dependencies assessment needs to be conducted, typically using trigger questions, general rules of thumb, and guidelines.
  • Scope to ensure that the assessment focuses on the most relevant issues and also generates insights into trade-offs associated with ecosystem dynamics and ecosystem services in environmental, social, and economic contexts.
  • Gather baseline data, collect new data in the field, and/or obtain existing data from third-party sources, which relate to present and potential future scenarios of ecosystem structure and function and could in turn affect the flow of ecosystem services.
  • Assess corporate impacts and dependencies on ecosystem services over time, including reviewing the relative importance and/or ranking of impacts and dependencies for various ecosystem services beneficiaries.
  • Develop mitigation and management plans, including monitoring, as well as an implementation plan and an operationalization budget for personnel with the appropriate skills or training.

As with any snapshot of an emerging area of practice, the components of ecosystem services assessments will likely continue to evolve. This means that companies now have the opportunity to explore and adapt this work over the coming months and years. During this time, more business leaders and investors will seek to take action on their impacts and dependencies on ecosystem services.

Top image of Pantanal landscape in Brazil by Filipe Frazao via Shutterstock