Today’s launch of the first global Natural Capital Protocol provides a timely route map for the water sector to future natural capital regulation, which should help companies scale up their plans, according to Robert Spencer, Director of Sustainability at AECOM.

Robert Spencer was commenting as representatives from over 160 of the world’s leading organizations met in London today for the launch of the Protocol, a new framework that will help businesses make better decisions by including natural capital.

AECOM is among the 200-plus public and private sector organisation who make up the Natural Capital Coalition – Anglian Water, Thames Water, Wessex Water and Yorkshire Water are also members.

Applicable globally and across multiple business contexts, the Protocol and accompanying sector guides provide a standardised framework for businesses to measure and value their direct and indirect impacts and dependencies on impact on natural assets and raw materials.

In addition to helping organisations to manage their risks, applying the guidance can help them to:

• Support a social license to operate
• Reduce raw material costs and risk of interruption to supply from extreme weather, flooding etc.
• Realize efficiency gains
• Identify future legislation
• Reduce compliance costs and risk of fines and penalties
• Reduce financing costs and increase margins
• Improve access to finance – attracting investors
• Identify new revenue streams and differentiate products

The Protocol, which is freely available under a Creative Commons license, was developed by the core development team of the Natural Capital Coalition. Over 450 organizations provided input over the course of the two year project,  while over 50 leading businesses piloted the Protocol, including Dow, Shell, the Coca-Cola Company, Kering, Hugo Boss, Yorkshire Water, Nestle, Interface, Olam and Nespresso.

According to a 2013 report commissioned by the Natural Capital Coalition, half of all existing corporate profits would be at risk if the costs associated with natural capital were to be internalized through market mechanisms, regulation or taxation. A water shortage, for example, would have a catastrophic impact on 40% of Fortune 100 companies.

Commenting at the launch, Mark Gough, Executive Director of the National Capital Coalition, said:

“The Natural Capital Protocol will allow all businesses around the world to realize the benefits of including nature in their decision making. It has been amazing to see how a community can come together at a time of need and collaborate to produce something for the common good. Now we have a standardized framework, it is time for action.”

Liz Barber, Group Director of Finance and Regulation, Kelda Group (Yorkshire Water),  who sits on the Board of the Natural Capital Coalition, commented:

“It is increasingly apparent that traditional financial accounting practices are failing to recognise all relevant business impacts and risks. The natural capital protocol is a real world first in bringing structure and a standardised common framework for natural capital assessment.”

The Protocol is applicable to any business sector, operating in any geography, at any organizational level, allowing organisations  to measure, value and integrate natural capital into existing business processes. It does this through a standard framework that covers four stages; “Why”, “What”, “How” and “What Next”.

The Coalition is currently in the process of developing separate sector guides to accompany the Protocol. The first two cover Apparel and Food & Beverage and the Coalition has said it would welcome dialogue with sector-specific initiatives interested in working towards developing additional guides for their sectors.

During the course of the two year project AECOM assisted Yorkshire Water to apply the Natural Capital Coalition’s draft Natural Capital Protocol (the Protocol) to a trial site at Rivelin Water Treatment Works.

 The site is one of the key water treatment plants supplying the City of Sheffield where a £24 million capital upgrade scheme had recently been undertaken to ensure the continued reliable supply of high quality water to customers.  A number of high level options were initially considered before two main solutions were assessed in more detail.  The pilot retrospectively evaluated the natural capital impact of the two upgrade solutions (the ‘notional’ and the ‘chosen’ solution) compared to the existing baseline infrastructure

"Companies that incorporate natural capital into their plans now could be at competitive advantage when regulation comes into play in the future”

Robert Spencer from AECOM described the Natural Capital Protocol as a momentous step forward for the natural capital agenda, which would bring much-needed consistency to the market. However, he also cautioned:

“Success, however, will hinge on companies’ ability to integrate natural capital assessments into their everyday decision-making. While the Protocol arms sustainability professionals with robust guidance on how to measure the value of natural capital, progress is dependent on achieving buy-in from more commercially focused departments, such as finance and procurement.

“A lack of specialist skills and resources may also present challenges for organisations that have not previously assigned financial values to natural assets. A multidisciplinary approach will be required, with greater cross-departmental collaboration between specialists who may not have worked together before. A further complication is that not all organisations will have all the necessary skills in house.”

“Although many organisations currently measure natural capital at a site or catchment level, the next step is to develop and roll out a business case across their entire operations. Companies that incorporate natural capital into their plans now could be at a competitive advantage when anticipated regulation comes into play in the future.”

Later this year the UK Government is due to publish  a 25 year environment plan in response to a recommendation in the Natural Capital Committee’s third State of Natural Capital Report. A draft of the plan is expected to be published by Defra in the summer which is expected to feature a natural capital approach, with the final version due before the end of 2016.

Click here to download the Natural Capital Protocol

Click here to download the AECOM/Yorkshire Water case study