How Can Brand Valuation Help Business To Account For Natural Capital?

We know that nature underpins 100% of economic activity, and that companies large and small are in different ways impacting on it. Sometimes that impact is beneficial, but more often it is leading to the depletion of the very natural systems that sustain businesses. Recognition of this is now quite mainstream, and has led to the realisation that if these impacts and dependencies are to be factored meaningfully into business decision-making, then nature and impacts on it need to be properly valued.
This is no simple task, not least because we struggle with the idea of placing a value on something apparently so intangible.
Various processes are underway, or have recently reported, on the financial value of nature. The National Ecosystems Assessment presented the value of British ecosystems to national economic security, while the Economics of Ecosystems and Biodiversity (TEEB) took a more global approach in exploring how natural services, such as pollination and carbon capture, can be assigned economic values. One major challenge that has come back to these and other assessments has been in relation to the accuracy of the numbers they have arrived at.
So while the basic premise as to the value of nature to the economy is broadly accepted, today the challenge is increasingly linked to the gathering and interpretation of data. After all, it is difficult to manage what is not measured, and in the absence of good metrics we are inclined to go on as before, with the contributions made by nature appearing on very few profit-and-loss assessments, and thus leaving nature economically invisible and regarded as free.
But while we agonise over the absence of accurate or sufficient data, companies should look at how they manage the value of other major assets, including their brands. Firms worldwide have realised that their brand is one of their most valuable assets. For some it far exceeds the value of their manufacturing plants and other tangible property. According to Interbrand, in 2012 the number one most valuable brand was Coca Cola, at $77.8bn, a figure far higher than all its factories, trucks and secret recipes. Apple was close behind with its good name priced at $76.5bn. IBM came next at $75.5bn, Google at $69.9bn and Microsoft at $57.8bn.
Even though these numbers are ballpark, and estimations described by the brand valuers themselves as "intangible" assets, key decision-makers from investors to boardroom executives believe these numbers and adopt strategies to protect brands as though they were as real as a bar of gold.
Interbrand says, "Brand valuation provides a common language for brand performance around which a company can be galvanised and organised. Responsibility for brand strength factors can be allocated to functions, building engagement and a sense of responsibility for the brand across the organisation."
So while business have become used to treating intangible asset valuations as reliable and useable, we remain paradoxically paralysed when it comes to putting a value on natural capital, partly because the value of nature is too intangible to calculate. It might be time to move on, however, and to learn from brand valuation in how we could approach the next steps.
Even though the valuation is necessarily ballpark and based in part on intangibles and estimates, it has profound implications for how companies are run. Given the urgent need to find practical measures that can do the same thing for natural capital, brand valuation could be used to inspire similarly broad conclusions about natural capital.
We need to find measures that show the impact of business on natural capital. An easy one to start with is the extent to which profitability is dependent on loading greenhouse gases into the atmosphere. Another is the water intensity of operations. One more is the amount of waste plastic, paper, metal and organic material that is sent to landfill or incineration. Reliance on pollinators and direct dependence on healthy agricultural soils and forests could also all generate ballpark data, and the extent to which the company is sustaining, improving or degrading them.
All this is could be combined to reach numbers with direct commercial interest. Food companies, for example, are entirely dependent on reasonably stable climate, healthy soils, pollinators and water. Take away any one of those and volatility and risk is the result. Investors should be interested in assessments of these risks, how they relate to brand value and the major decisions they have to make. It might not be possible to distil natural capital measures down to one figure, as is done with brands, but it certainly is possible to make estimates and map trends.
Excellent work is going on to find solutions in this space, including by The TEEB for Business Coalition and the B-Team. Perhaps they and others might find inspiration in how best to establish meaningful ballpark figures on natural capital by looking at how those who value brands do the same thing? Maybe this could be a topic for discussion at the inaugural World Forum on Natural Capital that will take place in Edinburgh this November.
So let's be bold and find ways to make meaningful estimates that people will use, and in so doing provide the steers that markets need to function properly. It goes without saying that doing this work is in itself a major business opportunity. Companies like Interbrand will tell you why.
This article was first published by The Guardian.