With a growing number of initiatives focusing on natural capital – not to mention the first-ever World Forum on Natural Capital taking place in Edinburgh next month – the subject is surely enjoying some much-needed time in the spotlight. But global standards and approaches for valuing natural capital are still developing – leaving many companies in the dark as to the best way to evaluate their impact.
Earlier this month, Berkeley, California-based company Climate Earth unveiled a software system to help companies do just that. Appropriately named the Natural Capital Management System, or NCMS, the cloud-based software is designed to enable companies to know what natural assets they depend on most, where they are being consumed, and most importantly, to establish processes to manage these natural assets both internally and in collaboration with suppliers.
Climate Earth began studying natural capital accounting and ecosystem valuation in March 2012 to determine if it could use its large-scale data and systems expertise to fill the gap between accounting for and management of natural capital. Going beyond simply quantifying a company’s depletion of resources and its emissions into the air, water and soil, the Climate Earth system attaches a dollar value to a company’s natural capital impacts in a way that is consistent and scientifically valid.
In addition, NCMS combines natural capital accounting data with business and financial data into an interactive system consisting of two basic elements: a tailored data model and cloud-based tools that together enable a structured management process. Each customer’s NCMS system is built around a tailor-made model that contains business data, environmental impact data, the supply chain model, and natural capital accounting data to yield reporting and analysis that are specific to a given company’s needs and management structure.
“We felt that putting the dollar value on the environmental impacts was an enormously important shift, because suddenly it helps executives see environmental impacts as what they are – as natural assets that should be managed like any other asset that’s critical or strategic to their operations,” said Chris Erickson, CEO and co-founder of Climate Earth.
“This is not the time to wait for finalized standards,” he continued. “The basic science is solid, and this is a time for action.”
How the system works
Bringing natural capital impacts together with the ordinary cost of doing business allows companies to more effectively answer questions like: What are my department’s natural capital dependencies? Are impacts from water consumption or land use more critical? In what country and tier of the supply chain are these risks the highest?
“Most companies don’t know what natural assets they depend on at all,” Erickson explained. “Because most of these extractions are deep in their supply chain.”
By linking each financial transaction to its environmental cost (such as a kilogram of water or CO2) and to its natural capital cost, and placing these costs in business structure form and supply chain context, the tailored data model allows for a more comprehensive analysis of direct out-of-pocket costs, the natural capital costs to the planet, and the whole cost, Climate Earth said of the system.
Each customer also receives a detailed research paper on how Climate Earth environmental economists derived the natural capital valuations to provide transparency to the analytic process, Erickson said.
As explained in the company’s white paper on the system, a typical NCMS data model contains tens to hundreds of millions of records – transformed into readable data that compares financial and natural capital valuations side-by-side. Moreover, the cloud-based tools allow customers to monitor trends, discover anomalies, identify risks and opportunities, and communicate next steps to managers across multiple departments. All of these capabilities are available from a Web browser, and results can also be downloaded to office applications.
The system has been piloted by Webcor Builders, a California-based general contractor that serves clients such as eBay and Lucasfilm, who will use it to inform the supply chain management of upcoming projects.
“As a construction company engaged in large commercial projects, we believe it is critical to understand both the financial and hidden natural capital costs of every project,” Phil Williams, VP of sustainability at Webcor, said in a press release. “Climate Earth’s NCMS gives us the ability to collaborate up and down the value chain with owners and suppliers providing the visibility and insight to make smarter choices and build better environments.”
Why it’s significant
Natural capital assessment is a concept with many moving parts and by nature includes impacts hidden deep within the value chain. By making it easier for companies to make informed choices about the materials they use, the suppliers they source these materials from and the processes utilized to create the final product, executives can begin to actively manage their natural capital impacts in a forward-thinking and strategic way, Erickson said.
“The natural capital evaluation gives a consolidated lens in financial terms to help management make better decisions,” he explained, adding that business decisions based on not only financial but also environmental and natural capital assessments will become increasingly vital in a world where natural resources are being rapidly depleted.
“Natural Capital Management systems are critical to the future of a sustainable economy,” he told us. “Every company should be managing these assets. For example, water scarcity, deforestation and continued greenhouse gas pollution all put companies’ fundamental viability at risk if they’re not managing their natural resources in a responsible way just like they manage all of their other assets.”
Image credit: Graphics courtesy of Climate Earth’s Natural Capital Management System
Based in Philadelphia, Mary Mazzoni is a freelance journalist who frequently writes about sustainability, corporate social responsibility and clean tech. Mary also contributes to Earth911; her work has appeared on the Huffington Post, Sustainable Brands and The Daily Meal. You can follow her on Twitter @mary_mazzoni.