Managing risk: a pragmatic examination of corporate approaches to ecosystem services

Background/Question/Methods: Ecologists exist to understand ecosystem function and how humans can interact with ecosystems sustainably. Given that a finite Earth can support a finite amount of life, the bounds of sustainability are defined by the myriad of ecological processes that enable life to exist. Therefore, human activities are sustainable when those activities conserve ecological processes or use biomass at a rate that is less than the rate of replenishment.

Corporations exist to make profit. To maximize this profit, corporations manage risks including financial, safety, regulatory, reputational, and environmental risks. Corporations will manage a risk when, over the long-term, the financial cost of managing that risk is less than the financial cost of doing nothing. The degradation of ecosystem services presents risks to corporations that, ultimately, will affect profits; however, the common economic paradigm treats the use or the degradation of many ecosystem services as “externalities”. As a result, the calculation of corporate finances does not include costs for using or damaging ecosystem services; hence, there is neither necessity nor incentive for corporations to manage risks linked to ecosystem services.

Results/Conclusions: Fortunately, corporations are recognizing that both the value of ecosystem services and the costs of the degradation of ecosystem services are real, substantive, and should be managed as corporate risks and opportunities rather than treated as externalities. Similarly, ecologists are recognizing that, until a new economic paradigm is adopted, corporations require a regulatory framework and financial valuation tools that provide clarity and consistency for the management of ecosystem services in a global market.

Ecologists can assist progress by collecting empirical data on ecological processes and quantifying the rates of use of biological goods and services that are ecologically sustainable. These data provide candidate metrics for monitoring, drive the models that improve valuation, offer insights into the range of corporate risks and opportunities, and guide development of ecologically beneficial regulations.

Additionally, ecologists can contribute to business planning and social discourse by examining the resilience of socio-ecological systems and by collaborating on novel and innovative processes in a true Adaptive Management framework that can lead to the sustainable use of ecosystem services.