In this issue, the importance of water as one of the greatest environmental risks facing business and society is made clear. So why an article on biodiversity? What relevance do pandas and parrots have for the challenges we face of droughts and floods and access to the most important substance for life on our planet? In this article we hope to show how biodiversity and water are inextricably linked. Most people recognize that water is an essential part of almost every service we derive from nature but not as many realize the way biodiversity is intertwined into these very same services. We describe how biodiversity impacts the water services we depend on for the water we drink, the food we grow, the energy we demand and how biodiversity mitigates the impact of water-related natural disasters. However, while understanding the role of water in the provision of environmental services is relatively clear, understanding the dynamics of biodiversity and the specific role it plays in the same services is less understood. As a result, we continue to undervalue and underestimate biodiversity and thus fail to address its decline. This is particularly true for biodiversity associated with freshwater systems, which represent some of the most threatened life systems on the planet. Moving forward, we need a new approach to the way we manage environmental risks. We need to move from a fire-fighting, issue-by-issue approach of climate change today, water tomorrow and maybe biodiversity next year to focusing on the root of the problem, which includes recognition of the importance of diversity at the base of the system.
Nature as an economic “stock”
The water cycle is a physical process, driven by the energy of the sun. Seawater evaporates, clouds condense, rain falls and rivers and groundwater flow back to the sea—what have the birds and the bees got to do with this and what has that got to do with us? The answer is everything. One useful way of picturing the relationship for those with a more business-orientated mind frame is to borrow from the economic concepts of capital stocks and benefit flows.
Think of nature as an economic stock—a natural asset or “natural capital.” This stock is made up of non-living components (collectively known as “geodiversity”) and living components (collectively known as “biodiversity”). These living and non-living elements combine to form “ecosystems”—a biological community of interacting organisms and their physical environment such as a coniferous forest on acidic soils or sea grass meadow in the coastal shallows. Like any other form of capital, under the right conditions this natural capital can yield a flow of benefits that have value to people. These flows are known as “ecosystem services” and they include the foods and fibers we like to consume, the health and well-being services we like to enjoy and the ecological services that underpin these. Each of these services has some level of value to different parts of society. Some may be important to the owner of the natural asset (for example a farmer is dependent on the services producing their crop). Some may be more important to wider society (for example a peat bog may provide important climate regulation services that are essential for society as a whole but have less value to the asset owner) and some may benefit all (for example the flood protection service of a forest may benefit the asset owner and the surrounding communities). Most people recognize water is an essential component of the natural capital stock and involved in most of the services we derive from nature. For some of these services it is the water itself that forms the service, such as the flows of freshwater that are used to drink or cool machinery or the removal of pollutants from the land by rivers. For other services, water plays an underpinning role—from the growth of the food and fibers we consume to the weathering of the rocks to form the landscapes we like to enjoy. Fewer people recognize biodiversity is of equal importance to the generation of services. In a similar way to water it is sometimes a direct component of biodiversity that provides the service—fungal genes for antibiotics, the range of plants and animals we eat, or the range of pest-controlling predators we rely on to control disease. But like water, biodiversity has an underpinning role for almost every service we derive from nature. That is not to say every service depends on biodiversity—the minerals we mine and the petrochemicals we extract arguably have little interaction with biodiversity, at least on the time scales relevant to us today, but services that are generated without some level of interaction with living things are the exception to the norm.
Forests and wetlands and flood plains as natural infrastructure
It should come as no surprise, therefore, that the key services we associate with water also involve biodiversity. The water cycle may be a geophysical cycle driven by the sun, but it rarely occurs without the influence of living organisms at some point.
For example, one of the key ecosystem services is the provision of fresh water for drinking and sanitation. Every person on the planet depends on these services. The ‘natural infrastructure’ of forests, wetlands and flood plains and the biodiversity that forms them plays a major role in the cycle of water that provides these services. Forests play a role in determining where water falls in the first place. The loss of forest cover in the Amazon is now occurring at a level that is visibly changing regional rainfall patterns. Natural infrastructure also plays a key role in regulating the flow of water after it has fallen, with diversely vegetated land slowing and smoothing water flow and avoiding the management challenges caused by peaks and troughs in flows that occur in urban areas where water flows directly over impermeable concrete infrastructure. Thirtythree of the world’s 105 largest cities derive their drinking water from catchments within forest protected areas such as national parks and reserves. Biodiversity then plays a further role when wastewater is ejected from the system. Over 80 percent of global wastewater is released untreated into the environment and it is the natural processes associated with living organisms associated with riverine systems that play a vital role in breaking pollutants down and avoiding us poisoning ourselves. For these reasons, and others, the water utility sector is now considered to be one of the top ten sectors with both direct and supply chain dependence on biodiversity.
A sector with even greater reliance on biodiversity is agriculture, where living organisms play a huge role in regulating the water required to grow the crops and livestock we rely on and to process the pollutants that flow from agricultural systems. Agriculture accounts for 70 percent of global water withdrawal and any changes in the supply and flow of this water can have huge implications. In the Amazonian example, if current trends in forest loss continue, prolonged periods of drought are forecast, with resulting annual agricultural losses of over USD 400 million projected.
The energy sector is another industry highly reliant on water and biodiversity, with 90 percent of global power generation a water-intensive process. These dependencies are clearest for hydroelectric power, which generates about 16 percent of global energy. Vegetation and soil biodiversity play a crucial role in managing the water sediment load of the reservoirs used by these power stations, a function that can be carried out using technology but at greatly increased cost. The benefits of catchment biodiversity to hydroelectric power companies are one of the few areas where the value of biodiversity is being recognized and acted on, with various examples of “payment for ecosystem service” contracts between companies and local communities to manage forests for the benefits they provide to the water services the company relies on. By 2035, water withdrawals for energy production are projected to increase by 20 percent and consumption by 85 percent. Ensuring biodiversity is considered in managing the impacts of this demand will be essential.
Finally, biodiversity plays a key role in the mitigation of damage from natural disasters. Annual economic losses from weather-related disasters are estimated at between USD 250 billion and USD 300 billion and 90 percent of these are water related. Biodiversity can play a key role in mitigating the damage from such events, with mangroves, wetlands and other coastal ecosystems playing an important role in shielding communities and absorbing much of the impact of natural disasters. For example, following Hurricane Sandy in 2012, wetlands were estimated to have saved more than USD 625 million in avoided flood damage. In a recent report by WWF on the economic contribution of nature to the global economy, the UK was highlighted as being particularly vulnerable to risk due to the extent of its coastline in the face of rising sea levels, but it was also identified as one of the countries where nature-based investment could therefore have some of the biggest economic impact. It has been estimated that protecting coastal wetlands could save the insurance industry USD 52 billion a year through reduced losses from storm and flood damage.
How water interacts with other parts of natural capital to generate services is fairly well understood. The same cannot be said of biodiversity. There are several reasons for this. To begin with, measuring biodiversity is a nigh impossible task—unlike water or carbon it is difficult to capture biodiversity in a single value. The best we can do is measure proxies like the diversity of a single taxa, or the presence of endangered species. Secondly, we often don’t know which services we need to understand. A couple of decades ago the carbon sequestering services of peat bogs were of little interest, but today they are perceived as immensely important. Thirdly, we simply don’t understand enough about the infinitely complex pathways involved to generate the services we value. Science may have teased out the roles of a handful of key genes or species in the production of some services, but we can never hope to understand every interaction between every pest, predator and pathogen involved in every service we value. Ecosystems are like an ecological Jenga, the game where bricks are stacked and then removed one by one with the aim of not collapsing the tower. Every biodiversity brick in the ecosystem tower plays some role in the overall structure of the system but knowing the relative contribution of every brick is almost impossible. Some can be removed without major impact, but the more we remove, the weaker the system becomes. Finally, many of us are now so disconnected from biodiversity, sitting in our urban centers at the end of complex supply chains, that these relationships are simply out of sight and out of mind.
That is not to say science has got nowhere understanding how biodiversity relates to ecosystem services, and there are some generalizations that can be made. The first of these is that, in general, more biodiversity and geodiversity mean a greater range of services are being generated. Related to this, more diversity generally means a greater resilience of a system to change, or adaptability to change if it occurs, because higher diversity gives more options for response. However, more biodiversity does not necessarily lead to a greater volume of a single service. In agriculture, for example, greater volumes of a target crop are generated by low diversity monoculture production, focusing on the volume of one service at the expense of the range and resilience of services from the system as a whole. As a result, the services that are most dependent on biodiversity tend to be the less visible maintaining and regulatory services and the values associated with these services tend to be the values that benefit society as a whole rather than the individuals that control the assets.
Because water is measurable, its role in services is fairly well understood and the benefits generally accrue to the people managing the assets, we are better at recognizing the economic importance of managing our water supplies which in turn incentivizes better management. The same is not true for biodiversity, which remains largely economically invisible and thus absent from most decision-making processes. Yet calls to protect biodiversity without a firm economic argument simply fail to carry sufficient political weight. Despite being every bit as important as water in generating the services we rely on to live and to thrive, biodiversity remains perceived as a low priority ‘nice to have.’ The result is a biodiversity crisis— biodiversity is being lost at levels unprecedented throughout human history, with over a million species threated with extinction. Biodiversity associated with water seems particularly vulnerable. We are losing wetland habitats three time faster than we are losing forests. Since 1970, declines have affected 81 percent of inland wetland species populations and 36 percent of coastal and marine species.
The approach of companies to environmental problems
Understanding and management of companies’ relationship with the environment has evolved rapidly in recent decades. As part of a general reform of the way environmental, social and governance (ESG) issues are perceived, many businesses are now moving from seeing a strong environmental policy as a peripheral ‘nice to have’ within a corporate social responsibility program to an integral component of the business model that adds real value by managing dependencies and mitigating impacts and associated risks. However, as companies grapple with the scale of the challenge, a typical response has been to deal with issues as and when they arise—triggered by public pressure, competitor movement or incoming regulation. Climate change is rightfully the headline environmental concern facing the world today. Water is fast being recognized as the next environmental risk on the horizon.
Some would argue biodiversity is next, as illustrated by its unenviable rise in the WEF’s annual summary of global risks. But these issues are not separate threats—they are intricately connected and symptoms of the same common driver. Some companies actually assign responsibility for each of these issues to different divisions, at best operating independently and, at worst, competing for resources. Solving the problem requires an all-inclusive approach to all aspects of natural capital at once. It requires thinking on different geographical and temporal scales and, often, it requires cross-sectoral cooperation.
There are examples of such approaches being put into action. Many companies are now involved in the development of multi-stakeholder, pre-competitive standards that integrate environmental and social issues beyond legal compliance and there is increasing interest in landscape or jurisdictional approaches that attempt to manage environmental issues at an ecosystem scale across sectors. Interest in the value of ‘natural infrastructure’ is also on the rise.
For example, Eni Congo has been working together on maintaining healthy, intact habitats as part of the management of infrastructure corridors. Deluges of rain in the tropics produce flash floods that can cause rapid erosion of exposed ground and undermine the engineering stability of substrates for important pipelines and service roads. Vegetation can prevent this erosion and avoid expensive maintenance costs or safety issues such as bent and burst pipelines or vehicles damaged by rough roads and potholes. Eni are now integrating ecosystem-based water management across their systems to ensure the sustainability of water available to them and the communities they operate with and within.
The author: Thomas Miles Maddox and Pippa Howard
Thomas Miles Maddox is an environment and business expert with top class qualifications in business and environmental and social science. He has nearly two decades of experience, predominantly in positions of leadership and/or senior management, particularly in South East Asia. At present Maddox is Natural Capital Hub Manager at the Cambridge Conservation Initiative (University of Cambridge).
Pippa Howard directs Flora and Fauna International’s engagement with the corporate sector, leading programs to both advise and steer biodiversity management whilst leveraging change through critical interventions. She brokers collaboration and cooperation between business, government and civil society to address both practical and policy challenges to biodiversity conservation.
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