By Marcos Bicudo and Marina Grossi

Article published in the newspaper Valor Econômico this Thursday (15)

One of the most effective ways to manage the impacts of companies' activities on the planet's natural resources is to incorporate the concept of natural capital into corporations' strategic planning. In many cases, financial institutions have started to incorporate this concept when analyzing projects seeking financing because they have understood the repercussions of the risks associated with the intensive use of the planet's natural resources and their potential impacts on corporations' activity/productivity.

The risk associated with natural capital, from the point of view of productive activity, can be defined as a necessary precaution in the face of a negative externality. In economic jargon, externalities are unaccounted for factors, elements that are not part of business planning and that can be internalized at a given moment. When they are negative, these externalities become a problem. Sometimes a big problem, because they can start to affect the very nature of activities, causing unpredictable harmful effects or even making entire business models unviable.

Poor management of the relationship between business activities and natural capital mobilized in multiple production processes is responsible, in our country, for externalities in the order of R$1.646 billion per year, according to studies by the Pangea Capital Consultancy.

What we cannot quantify makes it more difficult for us to understand and integrate into business management. Based on this idea, a group of scientists linked to Stockholm Resilience Centre stipulated nine boundaries that humans could not cross, at the risk of jeopardizing our life on the planet. The study, published in 2009, indicated that three of these limits have already been crossed at the current stage of development. These limits concern the fields of climate change, biodiversity and nitrogen concentration in the atmosphere.

It is no longer feasible that, faced with countless examples of growing conflicts over the distribution of natural resources, companies fail to consider the possibilities of scarcity of resources such as water, or the unpredictable consequences of events associated with climate change caused by ever-increasing levels of carbon dioxide in the atmosphere.

Business leaders in the past did not take into account the impacts of the relationship between business and natural capital. This was because there was an assumption that resources were infinite or inexhaustible. Today, we know that the risks associated with the lack or scarcity of elements mobilized in the production process can no longer be ignored in process planning or in credit risk analyses.

We are talking about the direct impact on the day-to-day activities of companies, their credit operations, the prospects for business expansion, the way in which they are organized and the prospects for their survival. The recent events related to the water and electricity crises are eloquent examples of this fact.

Robert Costanza, an American researcher and one of the greatest experts in defining the conceptual contours of the idea of natural capital, proposed in 1997 a methodology for pricing ecosystem goods and services across the planet that cannot be expressed in the market. These goods are crucial to our lives and to our productive activities. In a study published in 2014, he arrived at a figure of 145 trillion dollars. The calculation includes several benefits ranging from plant pollination to water supply. Since then, the need to specify this concept has been progressively gaining ground.

Incorporating the concept of natural capital into the lives of companies is a process of breaking paradigms that requires the development of a methodology capable of capturing in numbers the dimension of the impacts related to the various sectors. In this sense, the Brazilian Business Council for Sustainable Development (CEBDS) joined the initiative called Natural Capital Coalition, formed by a group of renowned institutions with global reach, for the elaboration of the Natural Capital Protocol.

This Protocol is a scientifically based proposal for standardization. It offers business managers a method for producing reports that, in an articulated manner, measure the impacts of their activities on natural capital. Widely diversified segments, from mining companies to banks, with also very varied relationships with ecosystem resources, will be able to measure the size of their natural “footprint” in a coherent manner, based on a single methodology.

At the methodology launch event, held in July in London, some global companies were selected to present their cases application of the Protocol, including the Brazilian company Natura, which is already well advanced in incorporating this conceptual dimension and in assessing the impacts of its operations. Through its Externalities Valuation Project, it can quantify the impacts caused throughout its production chain, from the planting, extraction, manufacturing stages to distribution and consumption, including the use and degradation of packaging. Natura reached the figure of R$1.4T132 million, corresponding to R$2.1T3T of its revenue.

Other large corporations such as Eletrobrás, Renova Energia, CPFL, Votorantim and Amaggi have also joined the tests provided for in the Protocol. CEBDS, fulfilling its most important role, will actively participate in training Brazilian companies for the process of implementing the Protocol through the Business Partnership for Ecosystem Services (PESE). We are facing a structural challenge, a challenge that will change the way companies see themselves and their relationship with society and the planet itself.
Marcos Bicudo is chairman of CEBDS and CEO of Masisa.

Marina Grossi is president of CEBDS.