The Natural Capital Protocol: A New Comprehensive Framework for Managing Natural Capital

TheNaturalCapitalProtocol:ANewComprehensiveFrameworkforManagingNatural

Capital

Michelle Lapinsky, Natural Capital Coalition @m_ellelapinskiRose Perkins, Dow Chemical @RoseSPerkins

Joe Rozza, Coca-Cola @joerozza

Besuretoengageintheapp:sb16app.com

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@NatCapCoalition #NatCapProtocol

Michelle Lapinski@m_ellelapinski@EarthGenome

Rose Perkins@RoseSPerkins@DowChemical

Joe Rozza@Joe Rozza@CocaColaCo

Driving Business Value With Natural Capital

New Metrics BostonNovember 16, 2016

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TheProblemCo

mplica

tion

• Dramaticimpactfromtheavailabilityofinformationinnumerousindustries

• Nocenterorsourceofconsistentandbasicdataonthehealthandvalueofnaturalsystems

• Welacktheabilitytoeffectivelyaddresswaterscarcity,depletedsoils,severestorms,climatedisruption,collapsedfisheries,andfoodinsecurity

• Companies,investorsandgovernmentscontinuetomakepoor,uninformeddecisions

• Asaresult,today’seconomicsystemensuresover-depletionoftheplanet

• Dramaticgainsinscienceandtechnologyarenotbeingeffectivelyleveraged

• Wenowfaceanopportunityforthenextgreatrevolutionininformation– inthiscase“naturalcapital”information

Decisions aboutnaturalresourceusevirtuallyneveraccountforthetruevalueofecosystemservicesand“naturalcapital,”resultingincostsbornebyotherpartiesorsociety

Situatio

n

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OVERVIEW OF THE PROTOCOL

4The Natural Capital Protocol Framework: Stages

A standardized framework to identify, measure, and value direct and indirect impacts and/or dependencies on natural

capital.

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The Natural Protocol: Steps

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Frame: Why/Step 1

Interactions between NC, business and society

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What is natural capital?

Natural Capital is the stock of renewable and non-renewable

natural resources, (e.g. plants, animals, air water, soils, minerals) that combine to yield a

flow of benefits to people

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Get started: Conceptual model

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Articulated objectiveincluding audience, stakeholders and anticipated benefit

Scope: What/Step 2

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Scope a practical and appropriate assessment:• organizational focus, • value chain boundary, • type of value etc.

Scope: What/Step 3

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Prioritized list of material impacts and/or dependencies to consider

Scope: What/Step 4

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Scope: What/Step 4Impact and Dependency Pathways

15Impact pathway: How an impact driver results in changes in natural capital and how these changes affect stakeholders.

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Impact pathway

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Impact pathway

18Dependency pathway: How a business activity depends upon natural capital

vv

v

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Dependency pathway

v

v

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Dependency pathway

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Measure and Value: How

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Apply: What’s next

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What the Protocol does and does not do

The Protocol… The Protocol does not…

� Builds on existing tools, guides, methods and techniques

� Focuses on improving internal management decision making

� Provides a standardized process that is also flexible

� Provides a process to internally standardize the approach that you take

� Seek to create new tools and methods

� Provide a framework for external financial reporting

� Explicitly promote specific tools, methodologies or approaches

� Necessarily produce results that are comparable within or between different businesses or applications

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CORPORATE APPROACHES TO NATURAL CAPITAL

JoeRozza,P.E.,BCEEGlobalManager,WaterSustainabilityandNaturalCapital

[email protected]

@joerozza

OperationalizingNaturalCapitalAttheStrategy,ProgramandProjectLevel

Environmental Assets

Human WellEnvironmental Assets

Human Wellbeing

Sustainable

Business

Services Benefits

Conversion of

Services to

Benefits

Impacts

RestorativeInvestments

NaturalCapital101

BusinessValueModel

SustainabilityPerformance

RiskManagementProductivity

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Strategic Sustainability

Risks: Supply Availability/ReliabilityClimate ResiliencyReputationGreen Taxes/ComplianceSocial/PoliticalQuality Management

Opportunities: Sustainable Supply ChainsBrand ValueCommunity ConnectionLicense to Operate

2

Lean & Green Supply Chain

Risks:Operational and Capital Costs

Opportunities: Cost Avoidance/ReductionsCompany DifferentiationBrand ValueShareholder Value

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Innovation

Transformational Resource EfficiencyZero Waste | Cradle to Cradle | Upcycle | RestorationGreen Economy Technology/Infrastructure

Support Sustainable

Development Goals

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IncorporateNaturalCapital/ValuingNatureintoStrategies,ProgramsandDecisionMaking

Coca-Cola Sustainability

Programs

Business Value

Ecosystem Services

ValueChain

1

2

3

4

Impacts & Dependencies

ProgramUpgrades and

Extensions

Business ValueOf Program Upgrades

Business Value Risks/Opportunities

And ES

• Sustainability Performance

• Risk Management• Productivity• Quality

• Ingredient & Packaging Supply

• Manufacturing• Distribution• Cold Drink

Equipment• Post Consumer

General Approach – Assessing Impacts, Dependencies and Designing Investments(Simplified, Illustrative)

Ecosystem Assets

Biophysical Process

Support from Biodiversity

System Parameters

External

Threats

Beneficiaries

Sustainable Communities

Sustainable Business

Impacts & Waste

RestorationInvestments

Conversion of Services to

Benefits

Gray Infrastructure

GreenInfrastructure

NaturalInfrastructure

Ecosystem Services

Benefits

Benefits

Cascade ofEcosystemServicestoBenefits(Illustrative)

• WaterSustainabilityandSecurity• WaterQuantityMgt• WaterQualityMgt• FloodRegulation

• CarbonManagementandClimateProtection• CaronSequestration/Storage• ClimateRegulation

• AgriculturalProduction&FoodSecurity

ProvisionofServicesDependsUponFunctioningBiophysical Processand

Biodiversity

Valuing Nature in Business PlanningNatural Capital

ProtocolMonetization

Working Group Protocol

Valuing Nature in Business Decis ions

• Assessments• Strategy• Programs• Projects

Natural Capital Protocol

• Projects• Decomposition• Business Case

Monetization Working Group

Protocol • Corporate, BU and Plant Level Business Plans & Budgets

Strategic Planning and Budgeting

Rose PerkinsAssociate Director SustainabilityThe Dow Chemical Company

31DOW CONFIDENTIAL - Do not share without permission

Key Milestones

Seadrift Constructed Wetland• NPV of cost

savings = $280MM

Nature is valuable• Collaboration with

TNC• Revising business

decision-making processes

• New tools• Publications

2025 Valuing Nature Goal


Dow’s Valuing Nature 2025 GoalDow applies a business decision process that values nature,

which will deliver business value and natural capital value through projects that are good for the Company and good for

ecosystems.

ExampleTarget Metrics and KPIs:

Business-driven project alternatives that will enhance

nature and deliver $1 billion in NPV by 2025

All R&D, capital and real estate projects screened

NFV0

NFV1 or NFV2

Inclusion in the $1B

Tiered Process

ALL capital and R&D projects use this Nature Screen assessment

Engagement with project team, case studies, project improvements, etc.

Screen

MeasureDeliver

Business process (NFV) that will help us find the right projects


Dow Approach aligns to Natural Capital Protocol

Engineered Natural Technologies

• Green or natural infrastructure that provides the same services as grey infrastructure

• Example: Seadrift Wetland

Process Improvements

• Resource efficiency improvements that reduce impact on nature

• Example: Water recycling projects

Property

• Putting land (greenbelt or surplus) into conservation

• Example: Croydon Woods

Innovation

• New products that will enhance nature

• Example: DAS traits that help plants resist drought

• Option Appraisal• Net Impact

Assessment

• Dependency Assessment

• Revenue Opportunities

• Prioritizing / Screening

• Option Appraisal• Net Impact

Assessment


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TOOLS AND EXAMPLES

Rose PerkinsAssociate Director SustainabilityThe Dow Chemical Company


The Ecosystem Service Identification & Inventory Tool (ESII)

Initial Ecosystem Services• Air Quality Regulation

– Nitrogen– Particulates

• Climate Regulation– Carbon uptake– Shading

• Erosion Control • Flood Hazard Mitigation • Water Quality Control

– Nitrogen– Sediment

• Water Quantity Control• Water Provisioning• Aesthetics

– Visual screening– Sound reduction 38DOW CONFIDENTIAL - Do not share without permission

www.esiitool.com


Process Improvements: Reusing water at water stressed sites

Tarragona, Spain:• Dow part of a chemical complex that uses 19,000 m3 of water per hour –

previously from UNESCO protected Ebro River Basin• Collaboration with the EU and other companies, Dow now uses treated

wastewater from the Spanish cities of Salou, Tarragona, and Vilasecafor reuse in the complex’s industrial operations

• Dow’s reverse osmosis membranes provide the technology to deliver this water at a quality level usable by industry


Property Management: Croydon Woods

• ~ 80 acres of coastal plain wetland forest adjacent to our Bristol – Croydon manufacturing facility.

• Property previously identified as strategically important for preservation in Bucks County’s Natural Land inventory

• Dow has always been interested in keeping this in open space

Overview

• Cash from discounted sale and reduced long term maintenance costs – value toward our $1 billion goal!

• Some of the last remaining wetland forest in the region; 7 rare / endangered plant species

• Benefits to the site and community in the form of ecosystem services: recreation, storm water storage, air and water filtration

A transaction that delivers triple bottom line results


JoeRozza,P.E.,BCEEGlobalManager,WaterSustainabilityandNaturalCapital

[email protected]

@joerozza

OperationalizingNaturalCapitalAttheStrategy,ProgramandProjectLevel

EnergyNature

Recreation

Health Society

Women

Cities

Climate

Tomorrow

Agriculture

WaterStewardshipExample

94%115%

MEXICO: CLIMATE MITIGATION AND WATER STRESS REDUCTION

CONSERVATION IN THE AMAZON BASINCURRENT AND PREDICTED DEFORESTATION IN 14 CONSERVATION UNITS IN THE STATE OF AMAZONAS

SUSTAINABLE AGRICULTURE TO PROTECT GREAT BARRIER REEF

REPLENISH AFRICA INITIATIVE (RAIN)CLEAN, SAFE DRINKING WATER FOR COMMUNITIES

Globally, we replenish of the drink in your hand.

For Every Drop We Use

115%

We Give One Back

The Earth Genome

August 2016

“BigDatafortheEnvironment;SolutionsforBusiness”

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Valuable Problems that Need Help Solving

Identify highest water or ag supply chain risk, financial

impact, and solution scenarios to improve

resiliency

Supply Chain Site Selection

Food/Water Water

New sites: best location given long-

term resource inputs. Existing sites: Identify

investments to mitigate future risks

Prioritize levers to improve yield and

optimize inputs, given climate change and water availability

Prioritize investments to address water

issues (too little, too much, too dirty) to secure water for

operations

Insight for any company, city or investor to make decisions & investments.

Big environmental data + financial analysis inform key business decisions that drive profitability

in a rapidly changing & resource-constrained world

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Solutions: Two Example Applications

Water/Agriculture SolutionsEnabling “more crop per drop” in IndiaØ India Agriculture Tool (IAT)

Water Supply SolutionsEnabling Corporate Investments in Natural InfrastructureØ Green Infrastructure Support Tool (GIST)

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Our Early Partners

Can corporations use green infrastructure to help solve water issues?

GIST: What is it?

A tool that enables corporations to find the best options to enhance water quantity via nature-based solutions

How does it work?Assesses investment

options to improve water availability via wetland

restoration

More reliable base flow à

more available

freshwater (especially during

dry season)Current agric ulture lands

(likely former wetlands)Native wetlands

What happens if… …are restored to

• Science: Application of high-quality hydrological science (P-ET, streamflow, hydrodynamics)

• Data: Combines ~40 data sets (NOAA, USGS, NASA, EPA, etc.)

• Visualization: Easy-to-use web app. GIS location specific maps, cloud storage/compute

• End-user: User-specified scenarios and criteria.

• Critical f inancia l capabilities including NPV, IRR, and ROI to compare options

Data Science Visualization EndUser+ + +

GIST– GreenInfrastructureSupportToolHowweaddress:Howmuchwateristhere?

PotentialWetlands

GIST– GreenInfrastructureSupportTool

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Solutions: Two Example Applications

Water/Agriculture SolutionsEnabling “more crop per drop” in IndiaØ India Agriculture Tool (IAT)

Water Supply SolutionsEnabling Corporate Investments in Natural InfrastructureØ Green Infrastructure Support Tool (GIST)

IAT: What is it?

Enabling companies to better work with farmers to adopt new ag solutions to improve yield, income, and the environment.

How does it work?Assesses intervention (drip irrigation, no till)

options to reduce water use & increase yield

Which practices à increase

yield and farmer

income benefitCurrent agric ulture best practice Second agricultural site

Can we increase yield …in a new location

IAT – India Agricultural ToolHow we address: What interventions to choose?

Recommendation on best matrix of options (solutions)that may be most suitable for the local area

Yield, Income, and Environmental Benefit

India Ag Tool: wide-ranging benefitsIntegrating ecological, social and financial

Benefits for all key stakeholders: ecological, societal, and financial (all inter-related!)Incentives to change actual practices that produce better outcomes

Yield IncomeSocial benefit Financial benefit

WaterEcological benefit

Why the situation is so serious:

Existingpracticeshavealreadyshown:

• Billions of liters of water saved by changing ag practices

• ~90% of water in India used for AgWhy the situation is so serious:


Why the situation is so serious:


• Up to 20% yield increases from changing ag practices

• 90M ag households in India• 600M make living off agriculture• Yield in India significantly lags

other countries (per FAO)

• Increase in incomes of over 25% (less labor and water)

• Half of all ag households are indebted

• Over 300,000 farmer suicides since 1995

India Agriculture ToolVisual Mock-Up: Punjab, Total Net Benefit

Paybackperiod: 2.5yearsInternalRateofReturn:7.3%NetPresentValue:7,253

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IndiaAgricultureToolHowIATwouldaidfarmers

Toolusers

Opportunityscreening

Matrixofoptions

Farmerdecision/outcome

Data/estimaterefinement

• IATprovidedtocompanylocalteams(field,extensionservices)

• UseIATalongsideexistingtools/processes

• CompanyusesIATtodiscernpatternsforpossibleyielduplift

• Selectfarmers toassistbasedonestimatedopportunityandcompanypriorities

• IATleverages regional/villagedatatorecommendlocalizedsolutions

• Directinteractionbetweenfarmer/companyonbestmixofsolutions

• Benefitsestimatedbasedonyield,income,andlivelihood.EstimatedROI(includingcosts)

• FarmermakesdecisionbyusingIATinsights,in-fieldjudgement,andotherconsiderations(e.g.capital)

• Metricstrackedpostsolutionimplementation(yield,farmerincome,watersavings)

• Realizebenefit:Increasedfarmerincomeandmoresecuresupply

• IATupdatedpertrackedmetrics(yields,conditions,economics)

• Additionalsolutions,cropsandgeographiesaddedovertime

• OthercompaniesjoinIAT,helpingscaleadoption

Positivefeedbackloop

REFERENCE SLIDES

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Replenish Project Types

Public Education/Awareness &

Policy

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Sector GuidesDeveloping sector specific guidance to support the application of the Protocol

Enabling EnvironmentIdentifying the systemic barriers to including natural capital in decision making and developing solutions to address this at a regional or country level.

Natural Capital Data Framework Bringing together the community together to explore the common issues around data capture, storage and provision and the link to decision making

Protocol Application ProgramSupporting the application of the Protocol, and building the evidence for its further use.

Future work of the Coalition

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www.naturalcapitalcoalition.org