Protecting Nature

As climate reporting by companies becomes a mandatory requirement for doing business in developed economies, a similar development is likely for the protection of Nature. And Procurement will have a lead role in compliance for their organisation.

The change in thinking required by Procurement to protect Nature is that growth in a business must be decoupled from the consumption of resources. The emphasis must be to Repurpose items, using ‘re’ – Recycle (waste to new material); Reuse e.g. refill containers; Repair; Refurbish and Re-manufacture. And therefore to source sustainable products from suppliers, assessing the total cost of ownership (TCO), not just the buy price.

Financial Capital and Human Capital are terms used for resources that enable economic production. The term ‘Natural Capital’ extends the principle of capital to the natural environment. It considers that natural resources have value, because they benefit people as individuals and within societies and organisations. It also extends beyond considering Nature as a source of raw materials for production, to include ‘Ecosystem Services’ flows. These are divided into four categories:

• provisioning services – direct provision of products such as food items, timber, fibres and medicines;
• supporting services – productive oceans and forests; clean air and water; fertile soil; nutrient cycling; pollination
• regulating services – maintenance and control of natural processes such as floods, fire and climate and
• cultural services – aesthetic, recreational or spiritual assets

Humans are a part of nature, and incapable of surviving without the ‘ecosystem services’ that nature provides. While people have modified natural ecosystems, typically for production of agricultural commodities, they have often not considered (or costed) the necessary ecosystem services provided, such as: soil fertility, erosion control, pollination and insect control, that are expensive to recover if lost.

Business and Nature risk

Food companies are highly exposed globally to nature related risk, yet how many acknowledge the risk and take action to reduce it? To explore this question, the Australian Conservation Foundation (ACF) undertook an assessment and produced a report in July 2024 with the title The Future of Food.

For the assessment, the ACF worked with twenty of Australia’s largest food businesses. These included country divisions of multinational companies, domestic based companies (the smallest turnover was $A500m) and four retailers. The assessment found that almost none of the companies had even begun to assess nature related impacts, dependencies, and risks in their supply chains, with even less disclosing them.

The benchmark assessment considered 37 sustainable practice indicators across four themes: Risk Assessment and Disclosure; Nature Targets; Strategy and Action and Governance. It also viewed the companies’ commitment to transparent reporting. Across the 37 indicators, the average score was 17 percent, with the highest score at 47 percent and the lowest at zero!

The capability, using technology, for Visibility through supply chains is a popular topic for articles. But in the assessment, only nine companies could demonstrate they traced any of their agricultural commodities back to the farms where they were produced. And seven of those nine businesses did so for less than 25 percent of the commodities.

The lack of supply chain visibility indicates that even large, and well resourced companies are not investing in mapping their supply chains. Without knowing the location and features of a supplier’s operations, the ecosystems, dependencies and impacts of events cannot be assessed or nature related risks identified and managed.

Risk Assessment and Disclosure was the worst performing section in the assessment, even though food supply chains depend on health of the natural environment. Not one company had conducted a Nature specific risk assessment. Without an understanding of how their operations impact Nature, effective long-term Sustainability policies cannot be structured and implemented.

This was evident, because no company had set targets for water use or water pollution reduction at suppliers. In Australia, the water risk is high because there is a very varied pattern of rainfall for irrigation and to replenish water storage facilities. Yet water is a critical input for agriculture:130ml for 1gm of lettuce; 3.4lt for 1gm of rice and 15lt for 1gm of lamb meat.

The five largest buyers of beef in Australia had not set deforestation targets that align with international best practice. This is despite beef production being a major driver of deforestation in the country; reported to have the highest rate in the developed world.

The situation in the report illustrates the wide gap between the ‘wish list’ of technologies and techniques for supply chains and discussed in journals and on-line newsletters, and the actual situation in large brand name companies that have the capability and resources. The question is whether companies that use short-term measures of performance are willing to invest in their longer-term self interest or will they only react when hit with financial penalties for non-compliance?

Information about Natural Capital

In a 2023 report, the World Economic Forum (WEF) stated that over half the world’s economic value generation, or GDP, is highly or moderately dependent on Nature. But modern humans tend to take for granted things considered as ‘free’ and consequently have exploited Nature. So, a performance measurement process is required, called Natural Capital Accounting.  

However, there is also a need for data to establish the basis for action. This is the UN System of Environmental Economic Accounting (SEEA), a framework that integrates economic and environmental data. It provides a common framework, concepts, terms and definitions, but is a flexible system that can be adapted to countries’ priorities and policy needs.

The SEEA is at the heart of the European Union’s ‘Green Deal’ initiative, that acknowledges the interconnections and dependencies between the environment and economy. While the aim is to achieve zero net emissions of greenhouse gases by 2050, it also aims to decouple economic growth from resource use. The SEEA has been adapted for use in the EU and other countries, such as Australia.

To help companies measure and incorporate natural assets into their financial records, the Natural Capital Handbook was published by the CSIRO in Australia in 2023. It draws upon existing standards and frameworks for national level accounting under the SEEA framework. It is a publication of value for supply chain professionals to understand the elements that can be implemented by their organisation to place a value on Nature.