HSBC, BNP Paribas, Credit Suisse, Bank of America, JPMorgan and First State Investments and others. Together they control assets worth some $5.8tr.55 Companies can demonstrate leadership and engage with investors by proactively disclosing on their plastic use before they are asked to do so.
the concept of natural capital as a tool to assess risks and opportunities Plastic use has impacts associated with it, depending on how well it is understood and managed. These impacts can potentially translate into risks, or opportunities, to businesses. In order to understand the potential magnitude of these risks and opportunities, this report uses a technique called “natural capital valuation”. This technique translates physical impacts into a monetary figure, which expresses the potential value that companies would have to internalise if they were held accountable for their impacts. As such, natural capital valuation helps assess the magnitude of the financial risks and opportunities faced by companies. Natural capital is the term used to describe the renewable and non-renewable natural resources that companies rely on to produce goods and deliver services. Businesses depend on natural assets that are non-renewable (e.g. fossil fuels and minerals), as well as renewable ecosystem goods and services, such as freshwater, timber and a stable climate. Business decisions around site operations, supply chains and products drive the use of natural resources. The capacity for renewable natural resources to regenerate over time affects the availability of stocks. Their ability to absorb unwanted by-products of production such as pollution and waste is limited. But the value of access to land, clean air and plants that provide critical inputs such as food, energy and fibre is usually excluded from financial accounts. Business activities such as extraction and production can damage natural capital and cause economic costs that are largely external to market prices. Increasing environmental degradation and resource depletion combined with growing demand are highlighting the need to value natural capital. Companies need to improve the way they manage annual flows of natural capital to reduce economy-wide costs. To do this, they need to understand sources of value and risk. Measuring physical flows of resource use, pollution and waste provides a starting point to evaluate which ecosystem goods and services businesses depend on. Natural capital valuations convert physical impacts measured in terms of cubic metres of water used or tonnes of plastic entering the marine environment into a monetary value, expressing the damage caused to the environment and society. Valuation is essential to understand the true value of environmental assets, according to an authoritative study by The Economics of Ecosystem and Biodiversity (TEEB) initiative. It says that despite uncertainties, economic valuations of ecosystem services can improve decisions around risk management.56 Trucost research for the PRI and UNEP Finance Initiative (UNEP FI) valued resource use, pollution and waste linked to the 3,000 largest publicly-listed companies at over $2tr in 2008.57 In addition, several companies have already conducted and publicly disclosed environmental profit and loss accounts (EP&L) such as Puma, Becker Underwood and Novo Nordisk. Applying economic valuations to these quantities is one approach that is gaining ground to strengthen decision-making and risk management. Initiatives such as TEEB and World Business Council for Sustainable Development (WBCSD) Guide to Corporate Ecosystems Valuation encourage businesses to evaluate natural capital so that decisions consider related financial risks and benefits. To make this possible, companies need to measure and report relevant information. In June 2012, 196 governments at the UN Conference on Sustainable Development committed to taking steps to encourage companies to consider integrating sustainability information into reporting cycles. Fifty-seven countries and the European Commission, along with 86 companies, backed an initiative to factor the value of natural assets such as clean air and water, forests and other ecosystems into business decision-making and national accounting.58 This approach to environmental economics and accounting underpins the methodologies used by Trucost in this report. The natural capital valuation of plastic impacts allows companies to: •
Understand the potential materiality of environmental impacts.
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Prioritise environmental issues to address in operations, supply chains and investments.
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Identify opportunities to reduce risk and optimise capital allocations and expenditure.
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Develop strategies to reduce the environmental impacts of plastic use.
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Build the case for monetary incentives to reduce environmental impacts.
In order to quantify the natural capital cost of these impacts, the methodology followed six steps: sector selection, plastic use quantification, scope and boundary selection, impact quantification, and natural capital valuation and application (see figure 6). Appendices 3 and 4 explains the methodology in more detail.
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