Does nature need a business case?

Photo by Petr Vyšohlíd on Unsplash

Generic statements like “bees are pollinators” won’t lead to change. Don’t get me wrong, I am in no way ridiculing the role of bees or the role of nature dependencies in economic prosperity. But I continue to note a shortage of business cases that clearly justify broad nature conservation through robust (quantitative) analysis of the consequences of harming nature. Have we made no progress since Hans Carl von Carlowitz explained why forests needed to be managed sustainably — back in 1713?

A recent article uses case studies to highlight the financial cost of nature-related risk. In its defense it addresses “mismanaged interactions with nature,” but I was still hoping for an illustration of how adverse impacts on nature or ecosystem services in turn caused direct damages for companies, as this is what a proper business case is: a justification for a business decision based on its expected commercial benefit.

Here is a summary: Avian influenza was unintentionally introduced into a poultry operation and authorities required the company to cull 159,000 turkeys. Tesla experienced construction delays because advocacy groups questioned whether a new “gigafactory” would cause local water stress. A group of companies faced legal liabilities and fines for polluting waterways. Other companies lost market value due to links to deforestation. And finally, California’s electric utility PG&E filed for bankruptcy after its infrastructure sparked out-of-control wildfires.

Aren’t these classic cases of poor (risk) management, inadequate compliance, and irresponsible business conduct? Avian influenza poses a global epidemic risk and, certainly in this case, it was not a physical risk linked to the company’s degradation of nature. Tesla’s troubles were the consequence of protests, not because the company had depleted natural resources. And the other cases illustrate flawed business practices that affected valuation — the financial loss was indirectly linked to nature degradation but not caused by it.

The relationships between nature and companies are complex, and the business cases are not obvious. This is well explained by the tragedy of the commons, a concept frequently referenced by economists. It explains why humans tend to deplete natural resources: The individuals (over)consuming the resources pay no price. The financial consequences of nature loss usually result from the accumulation of countless, small impacts carried out by many actors. At the other end of the spectrum, substantial adverse impacts caused by individual firms tend to have material consequences only when they trigger outrage or legal action.

This is why we need an alternative approach. Is it time to start valuing and conserving nature without first asking for a business case? We benefit from natural capital and ecosystem services in so many ways, and societies and the economy are better off when these services are safeguarded (as von Carlowitz explained so long ago).

Perhaps nature considerations should be thought of as responsible business conduct; in which case, environmental due diligence regulations may be a powerful tool. The case examples above demonstrate a need for better regulation and strict enforcement — and for companies and authorities to be more diligent when it comes to the environment.

Olivier Jaeggi