Here’s a new acronym for all you accounting types – BES (biodiversity and ecosystems). Please take note, board members too, because it’s about to become an entry on your company’s balance sheet.

At least that’s the ambition of a G8-sponsored project called The Economics of Ecosystems and Biodiversity, made under the umbrella of the UN’s Green Economy initiative, which says that the unchecked loss of biodiversity is a greater and more immediate risk to our economies than climate change, and it wants business to do something about it.

TEEB for Business, published this week, highlights the point that, even though the activities of the world’s top 3000 listed companies led to biodiversity loss estimated at least $2.2 trillion – nearly a third of their combined profits and up to 7.5 per cent of global GDP – not a single dollar of it is recognised in any company accounts or measurements of economic growth.

That, says Pavan Sukhdev – the TEEB study leader and Deutsche Bank executive – is because the global economy treats nature as a free service. But as biodiversity is reduced, that free service is slowly but inexorably being withdrawn.

The TEEB report gives the example of the timber industry in China, where excessive logging was blamed for leading to more severe droughts and floods in 1997 and 1998, with direct impacts that were costed at some $30 billion by the Chinese government.

TEEB goes further, and says the loss of forest ecosystem services over 50 years of unchecked logging was worth as much as $12 billion per year, including climate regulation, timber and fuel supply, agriculture productivity, water regulation, nutrient cycling, soil conservation and flood prevention.

It said about 64 per cent of this loss can be attributed to the supply of timber to the construction and materials sector, which meant that the true marginal cost of timber production in China may have been three times more than the prevailing market price.

“Our focus on market based components means that we do not generally measure or manage the economic values exchanged other than through markets,” Sukhdev writes.
 
“TEEB has assembled much evidence that the economic invisibility of nature’s flows into the economy is a significant contributor to the degradation of ecosystems and the loss of biodiversity.

“This in turn leads to serious human and economic costs which are being felt now, have been felt for much of the last half-century, and will be felt at an accelerating pace if we continue ‘business as usual’.

So, what to do? The first is to develop an education program for businesses about the the value of the natural capital they exploit, and a recognition of the impact of their activities.

Although some companies champion the cause of “no net loss” or “no environmental impact”, four out of five firms – according to a survey by PwC – don’t see biodiversity as an important business issue, and only two of the world’s 100 companies manage it as a strategic risk.

Basically, introducing BES will require companies to add all the components of biodiversity to standard environmental performance indicators, and to look at the secondary impacts of their projects.

TEEB wants companies to report and value their biodiversity and ecosystems services in much the same way as they are now required to do with greenhouse gases and mitigation efforts, although much work needs to be done on reporting standards.

This, in turn, may lead to a market that could dwarf even that predicted for carbon, although the two are inevitably intertwined.

TEEB cites the proposed REDD+ initiatives, which would value the carbon stored by protecting forests, or the proposal to use land based carbon offsets, and says new markets for biodiversity credits and intangible ecosystem services such as watershed protection are also emerging. The experimental water markets in Australia and wetland mitigation banking in the US are two examples.

Indeed, it notes that potential business opportunities from natural resources, including energy, forestry, food and agriculture and water, at up to $6 trillion.