In the sixth in our COP26 series, Adam Smith Business School at the University of Glasgow proposes a five-step programme for how businesses can work in harmony with nature to protect biodiversity
The recent Global Risks Reports from the World Economic Forum (WEF) are consistent in highlighting climate change and environmental degradation as amongst the highest and most impactful risks that the global economy faces. More significantly, these reports emphasise the hyper-connectivity of the global risk landscape. This means that not only are climate and environment amongst the most urgent and impactful risks to the economy, in the words of the 19th Century Scottish naturalist John Muir, these risks are ‘hitched to everything else in the Universe.’
This complexity is bound up in what Klaus Schwab (founder of the WEF) refers to as the underlying dimensions of the economic risk landscape in the 21st century: multiplicity, interconnectivity, and pace. Mastering these complexities is the foremost challenge for business and will require partnership to replace competition as the operating paradigm. Conventional models of growth through competitive advantage no longer make sense when companies are scrabbling simply to remain relevant to a new generation of consumers that is increasingly anxious about the future of their planet.
Given these challenges, what might be the new operating paradigm for companies? It is no longer enough to be ‘seen to be green.’ Consumers will demand action from corporates and verifiable outcomes that are easy to act on. The answer lies in corporates’ capacity and capability to ‘master the complexities’ Schwab referred to. Many recognise the need for joined-up business solutions that minimise unintended outcomes, often called ‘systems approaches’. However, the consequences of hyper-connectivity for the business world is often not fully grasped. This is most obvious in the approach of businesses and governments to climate and the environmental emergency.
The solution starts with understanding and accepting a simple truth: our economies are embedded within Nature, not external to it.
— Sir Partha Dasgupta, The Economics of Biodiversity, London, HM Treasury 2021
What does it mean to be ‘embedded in nature?’
What does it mean for our economy to be embedded in nature and what are the consequences for businesses and nature-based solutions?
The Invisible Hand of the free market is a greatly misused and abused concept introduced by Adam Smith in his An Inquiry into the Nature and Causes of the Wealth of Nations, arguably the most important substantive proposition in all of economics. Although elaborated beyond Smith’s original concept, it is taken to mean that in a free market economy, the outcome will be somehow ‘optimised’ through competition. Many parallels are drawn between this property of economies and the concept of Darwinian evolution – somehow ‘less fit’ species/organisations become extinct, and the ecosystem/economy is more optimal as a result. In fact, both interpretations are wrong, and we now know that economies and ecologies are innovation processes that are powered by sharing.
Kaufmann introduced the Theory of the Adjacent Possible to show how sharing of genes and innovations can lead to a hyperbolic explosion of innovation processes in evolution and in economies. The significance is the prediction that such processes generate an infinite number of possibilities in a finite time and explains the hockey-stick behaviour (long periods of slow growth followed by a rapid uptick) in both the number of species on Earth over time and in the number of innovations (products) in the global economy.
Returning now to the quote at the top of this introduction, we might begin to understand what it means for businesses to be embedded in nature. The difference between nature and economies is that nature tempers hyperbolic growth using natural selection based on competition for finite natural resources to limit the total biomass. The only meaningful constraint on growth in our economic system is whether something can be sold for more money than it takes to make and sell it. By placing an appropriate economic value on natural resources, innovations that have a large environmental cost will become extinct compared to those that don’t.
In both economies and ecologies, the number of possible innovations far exceeds the number that are realised, but the rate of innovation is not what limits growth. What ultimately limits growth is whether innovations in the past reduce the potential for innovation in the future. In nature, it doesn’t, but the climate and environmental crisis is proof that innovation in our economy does and has.
The future of the economy depends on us developing the means to make such innovations extinct and amplifying those that do not. But it also depends on innovations that remove the existing constraints that have been built up over time. Outcomes that do both things are what we call nature-based solutions.
Whole value-chain solutions
The interconnectedness and multiplicity of the global economic risk landscape means that we cannot treat risks in isolation. From a business perspective, the challenge is to predict how each part of your business, and the businesses it connects to, needs to change to maximise both profitability and nature-positive outcomes. This cannot be achieved by working with the parts in isolation, and a whole value-chain approach is required. The inherent complexities of taking such an approach are a barrier to adoption.
Arbikie Distillery shows the benefits that can accrue when these challenges are overcome, and provides an example of delivering nature-based solutions by taking a whole value-chain approach. Located on the east coast of Scotland, Arbikie is a unique, field-to-bottle distillery in that they grow crops, distil, mature and bottle all on the same estate. They are also working on plans to power the distillery with hydrogen. In 2020, they launched the world’s first climate-positive spirit, Nàdar Gin, created by Master Distiller Kirsty Black as part of her PhD. Distilled from homegrown peas, Nàdar is carbon-negative, avoiding the release of 1.54kg of CO2 into the atmosphere through avoidance of fertiliser use and imported soy animal feed. Nàdar Gin is already having a positive impact in the distilling industry, with the potential for the gin industry to switch from distilling with wheat to distilling with peas: dramatically reducing the product’s environmental impact.
Measurement, reporting and verification
Assets in sustainable investment products are anticipated to exceed those in conventional funds by 2025. This means that access to capital will come with an increasing requirement to demonstrate positive environmental, social and governance (ESG) outcomes. ESG has the potential to transform the rate of investment in nature-based solutions, but this depends crucially on transparent and reliable measurement and verification of impacts.
There are now almost four times the number of connected digital devices in the world than there are people. Technology offers the potential to measure almost anything, almost everywhere, and so provides a source of pervasive data that is needed to optimise value chains for ESG. The advantage of digital technology for ESG is that data can be secured using, for example, blockchain from source to stakeholder, allowing for transparent and secure auditing of impact.
Other kinds of nature-based solutions are harder to monitor, and biodiversity is one of the hardest. Huawei has demonstrated the potential of connected acoustic sensors for quantifying biodiversity. A partnership between Huawei and Rainforest Connection (RFCx) is hoping to use this technology to build up a picture of the behaviour of endangered red squirrels in the UK, the number of which has dropped to dangerously low levels since the introduction of the non-native grey squirrel. Using acoustic monitoring as a survey technique, it is hoped the project can provide insight into behavioural patterns which support conservation work and promote UK biodiversity health based on the sounds of nature.
Data that feeds into measurement, reporting and verification (MRV) is only useful if proper standards and regulations are in place. This is an urgent need in the case of nature-based solutions where data related to aspects such as soil carbon and biodiversity are not subject to internationally-recognised standards. There are lessons to be learned from other sectors, and particularly from engineering. This is especially relevant given that more people now live in urban environments, and the role of cities in delivering nature-positive outcomes is critical.
For example, Shanghai’s rapid rate of urbanisation increased the risk of urban flooding and river pollution, exacerbated by the impact of climate change. To combat this, the Shanghai government developed a new Urban Drainage Masterplan in partnership with Arup.
By studying relevant cases across the globe, Arup challenged the traditional approach of focusing solely on drainage. Instead, they utilised a visionary ‘blue, green and grey’ design approach – combining the green infrastructure of the land, the blue infrastructure of the rivers and the grey infrastructure of channels and drainage networks – that exploited the full scope of the integrated water cycle within the city.
Five steps that enable nature-based solutions
This introduction and set of case studies highlight the need to embrace complexities of an interconnected global economic risk landscape and illustrate approaches that do that. In particular, it highlights the importance of top-down regulation combined with sharing and cooperative behaviour in boosting innovation and embedding the global economy in Nature. It shows how this can be exemplified in whole value-chain approaches, and how reliable measurement, reporting and verification is a key to boosting the investment that is needed. Based on that, the following offers a set of steps that are necessary to enable nature-based solutions that impact positively on both climate and biodiversity.
Step 1: Adopt local values and set desired outcomes
Everything follows from a list of local (i.e. regional) values and target outcomes including acceptable trade-offs, and so this list is the starting point and a critical part of the concept of nature-based solutions. Local values and desired outcomes should be consistent with the global SDGs, and although the list can evolve, the initial choice can limit future options, and therefore requires careful thought.
Step 2: Identify the system
The system comprises all the connected businesses and natural processes that impact on the target outcomes, along with the interactions between them. Intrinsic uncertainties and ignorance mean we need to simultaneously embrace a range of different hypotheses about the links between cause (practices) and effect (outcomes) that constitute the systems map of the solution being sought. Each set of hypotheses will have a related level of confidence based on its consistency with available data and these should be considered when designing interventions based on the full range of hypotheses.
Step 3: Adopt a multi-scale approach
Nature-based solutions must connect to the relevant local and global businesses, to local supply chains and infrastructure, and to local and global policies to maximise their impact. This requires careful coordination of top-down and bottom-up governance. Top-down includes establishing a set of international standards for data and measuring outcomes; transparent regulation to ensure these standards; and the establishment of international scientific collaboration. BREEAM is the world’s foremost and most widely applied environmental assessment method and rating system for buildings, with close to 600,000 buildings with certified BREEAM assessment ratings and over 2 million registered for assessment since it was first launched in 1990. Bottom-up includes identifying local values and priority outcomes; establishing stakeholder trust; scientific input; and securing a digital infrastructure for measurement, reporting and verification.
Step 4: Secure a digital infrastructure
Nature-based solutions depend on MRV and so are contingent on a digital infrastructure that enables data collection and flow across the value chain; supports inputs from sensor networks that provide the pervasive data needed; and which brings information to all stakeholders. As part of the top-down and bottom-up approach, the local data infrastructure must be compatible with a global infrastructure.
Step 5: Establish an open innovation ecosystem
Nature-based solutions at any location should link to the wider global solution base to ensure benchmarking of outcomes, appropriate sharing of what works, and combining of innovation. Approaches should be co-created by all stakeholders to maximise the impact of the outcomes and to pool associated risks. This requires governance structures that enable inputs from local and global businesses, local and national policy makers, NGOs, and local and global science.