Strategic Thinking - What a Silent Spring Means for Business Risk
If your business’s only supplier of a key service folded all of a sudden, what would you do?
That is what a lot of agricultural companies are asking themselves right now. As reported in the New York Times last week, honeybee colonies in 24 states have collapsed. Colony populations have crashed by 30-70 percent, causing bee prices to skyrocket at and sending a $14 billion agricultural sector scrambling for insects to pollinate their crops. Yet there are not many options out there. The U.S. agriculture has grown increasingly dependent on trucked-in bees as natural pollinator populations have declined from habitat fragmentation and pesticides since the mid-20th century.
This failure was almost entirely predictable. The Millennium Ecosystem Assessment warned in 2005 that the agricultural community was over-reliant on the domesticated honeybee as a pollination service provider, and that the bee was prone to disease and parasite problems.
If a business had such a clear warning about its supply chain, one would think it would work to diversify or at least do what they could to shore up their suppliers to ensure their continued viability. Yet as we’re learning from the bee crisis, few companies examine the risks related to ecosystem services, like pollination, that they rely on. These risks may be large – according to the Millennium Assessment, two-thirds of ecosystems worldwide are being degraded or used unsustainably, and degradation will likely accelerate over the next 50 years.
There are a few cases of companies taking a proactive approach to ecosystem management. ForestRe, a forest insurance company, recognized that forests around the Panama canal help regulate water supplies to the canal and prevent excessive erosion that could block it. It convinced a consortium of insurers, Asian automakers and Wal-Mart to pay for re-forestation around the Panama canal to mitigate the risks of a shut-down.
For the most part, though, companies are not looking at their dependence on ecosystem services when examining risk or growth opportunities. This is not entirely their own fault; while there is a vast and growing body of scientific knowledge on these services, there have been few business-friendly tools developed to help companies analyze this topic.
This is very different than the current state of business sophistication when it comes to climate change. These days, companies have a slew of case studies, reports, and tools to help them figure out how to deal with climate change issues. Pressure from shareholders and groups like the Carbon Disclosure Project has forced firms to assess and report on their carbon portfolio. Financial powerhouses like UBS and Lehman Brothers are issuing report after report on climate risk management. And an army of nonprofit and for-profit consultants is out there to hold hands through it all.
Assessment tools are going to have to play catch-up as businesses confront the global degradation of ecosystems. An important first step, though, is coming from a collaboration between The World Business Council for Sustainable Development, along with the World Resources Institute and the Meridian Institute.
“After the Millennium Ecosystem Assessment came out, the business community said ‘Wow, this is amazing as well as disconcerting. But what do we do about it?’” says Craig Hanson, of the World Resources Institute. “At the end of the day a company needs to translate those findings into business strategy. That’s what we were hearing from the business community. Hence the idea to create a set of tools.”
Hanson is leading the development of a “Corporate Ecosystem Services Review”, a methodology to assess business risk and new opportunities arising from the damaged state of ecosystems. The review will be designed to help companies figure out what ecosystem services they depend on and impact most, and then devise strategies to deal with the risks and opportunities represented.
“[The tool] is quite systematic, and there’s value in that,” says Hanson. “There are whole suites of services that we don’t even think about, such as erosion control and climate regulation. All these services are taken for granted, yet many businesses depend on them.” With key ecosystem services identified, businesses can mitigate the risk of their failure by partnering with local communities or other industries to protect the ecosystems they rely on, or lobbying governments for stronger ecosystem protection policies.
The Ecosystem Services Review is due out this Fall, and is currently being road-tested by companies in multiple industries and across four different continents. These include power provider BC Hydro, paper producer The Mondi Group, mining group Rio Tinto, and the agribusiness Syngenta.
Global ecosystem degradation may be as big a threat as climate change. We all stand to lose a lot if its risks are ignored, but those companies that figure out where the opportunities are could make a bundle.
Noam Ross is an analyst at GreenOrder, an environmental strategy consulting firm.