New Metrics
Seeing the Forest Through the Trees:
The #BusinessCase for Valuing Natural Capital

For the past year, climate change has returned to the top of the international agenda. While I was attending COP22 in Marrakech last month, the news broke that Trump had been elected President of the United States, with widespread possible implications not just for the U.S. but for the COP21 climate deal reached after such hard bargaining last year in Paris.

There is much speculation about whether a Trump presidency will undermine the agreement reached in Paris, to limit the global increase in temperature to 2 degrees Celsius (1.5 degrees, if possible). However, even before Trump entered the picture, there was already a great deal of uncertainty about whether the world would be able to achieve this goal.

When it comes to climate change, the debate seems to have devolved into a question of “who pays?” I think this is too simplistic. Our natural world has an inherent value that yields benefits to all of us. Understanding and quantifying this value is the first step to protecting it.

That is why I have increasingly been drawn to business and investment models that are based on valuing natural capital. Fully accounting for the value of nature is important not just for the planet, but also for people and for businesses. Though many squawk at the concept of ‘monetizing nature,’ which many would argue is priceless, action will remain behind where it needs to be if we aren’t all able to understand that ecosystems and the services provided by them are not ‘value-less,’ and we must be able to incorporate the costs of maintaining and improving them into the way we do business.

For Asia Pulp and Paper, our productivity as a business relies on the survival of our forests, which in turn depends on the wellbeing of people living in and around them. These forests and the natural capital within them – water, biodiversity, sequestered carbon, etc – are our most important assets. They provide environmental services that support the air we breathe, the water we drink, the food we eat - making our investment in the landscape so important.

For too long this value has been disregarded. According to the WRI, between 2000 and 2012, Indonesia lost more than 6 million hectares of primary forest – an area half the size of England. This month, the FAO reported that net forest loss in tropical countries is 7 million hectares per year. This is a momentous loss: Would it still be happening if we were adequately valuing natural capital?

As a forester, I have dedicated much of my life to confronting the tensions that can exist between forests and people. For too long the assumption has been that economic gains by people must come at the expense of the forest. I do not agree. To use one example: For the last 12 months, my team and I have focused on developing an Integrated Forestry and Farming programme based on agroecology principles that aims to provide food security for local communities while protecting the value of the natural environment. The program is based on the recognition that while healthy forest ecosystems are essential to protecting biodiversity, promoting soil fertility, ensuring adequate water resources and realizing low carbon futures, they also have an integral role to play in supporting successful, resilient businesses and enterprise development.

Valuing natural capital is in many ways another way of saying mitigating risk. Our Integrated Forestry and Farming programme is an integral part of our response to the fires that devastated Indonesia in 2015. According to the World Bank, the fires cost the Indonesian economy $16 billion and 1.62 billion metric tons in greenhouse gas emissions – and that is before you start trying to account for the full cost to natural capital.

Fires result from a complex mixture of socioeconomic causes including deforestation, land degradation and low living standards. We know from previous experience that investment in communities to support livelihoods has a significant impact on incidences of fire. APP found that, in Riau Province in Sumatra, there was a direct relationship between fire incidence and the amount we invested in livelihood programmes in the region. Between 2013 and 2014, in just one year, we were able to achieve a 60 percent reduction in incidences of fire by implementing an additional 40 livelihood programs.

We are extending this approach for our programme; it will be implemented in 500 villages in 5 provinces over the next 5 years. APP will provide a total of $10 million as seed funding to support communities in adopting new agroecological farming practices, adding value through processing technologies, and helping to market their products.

Our rationale is this: By valuing and investing in natural capital we will be able to reduce risks not only to our business but to the whole landscape. The returns from this investment include reduced deforestation, conflict and risk of fire; and improved livelihoods, nutrition and food security for forest communities, all of which in turn reduce our operating risk as a company. As we make progress we are hoping to demonstrate on a wider scale why protecting natural capital makes good business sense.

Critics of the natural capital approach point to the fact that deconstructing nature into “services” and “products” and ascribing value to them promotes trade-offs and fails to capture the holistic value of ecosystems. Taking a landscape approach, which means understanding what the landscape means to each and every actor operating within it, helps to address this point: Natural capital should be about seeking to understand the value of the whole ecosystem, aligning High Conservation Values alongside a whole wealth of other services to communities, businesses, the economy and our planet.

“Who pays?” Yes, of course money is part of the equation. Climate financing and private investment have a huge role to play in securing the future of our forests; the approach we are taking at APP is intended to de-risk forest investment for international climate funding institutions and private investors, using a valuation of natural capital as the basis. However, to paraphrase Peter Holmgren from CIFOR, we need to see the bigger picture. Neither money nor carbon is the be all and end all.

The value of the forest is more than a sum of the trees. Our goal should be to build a sustainable growth model that benefits all of us, with climate stabilization as an important co-benefit.