In early 2011, Dow Chemical announced a $10 million, five-year partnership with The Nature Conservancy “to advance the incorporation of value of nature into business, and to take action to protect the earth’s natural systems and the services they provide people, for the benefit of business and society.” Solutions discusses this project with Dow Chemical’s sustainability director, Mark Weick, and The Nature Conservancy’s director of corporate practices, Michelle Lapinski.
How was the collaboration between Dow and The Nature Conservancy initiated?
Mark Weick: We at the Dow Chemical Company look at corporate strategy and sustainability goals and revise them to see where we’re missing areas that need to be emphasized. As part of a review over the last years, we saw that valuing ecosystem services was a gap in the way we were making decisions. With increasing demand on ecosystem services and decreasing supply, we recognized we had to learn how to properly price and value ecosystem services, especially as they go into decline. We turned to The Nature Conservancy, a group we’ve collaborated with before.
Michelle Lapinski: It’s a specific strategy of the conservancy to work with companies and help them integrate conservation into decision making, with the recognition that many companies don’t think of conservation or have biologists on staff. Dow had already been supporting sustainability projects. So we began talking in late 2009.
As one of the world’s largest, most profitable chemical companies, can you give us a few examples of the ecosystem services that assist in Dow’s business?
Mark: One of the key examples for us is that we rely heavily on freshwater to run our production facilities. Certain quantities of freshwater, timing of flows in river systems, and the water quality are vital in treating our plants, not only for the production of the chemical products but also for cooling. When those flows and the quality change, that creates inefficiencies for us. We’ve taken freshwater flows for granted, but we can no longer do that. We’ve had some real wake-up calls in that area, and we realize that the ecosystem services that serve us are quite valuable.
Have you calculated how much it would cost Dow to protect and conserve those ecosystem services compared to re-creating them artificially?
Mark: That’s what the collaboration is about. Yes, there are some ways we can value those systems. We compared what I call the “gray infrastructure” versus the green infrastructure for ecosystem services. But I don’t think industry and business know how to calculate those costs well, and we want to learn how to do that.
Is the mere idea of thinking about the value of ecosystem services new for companies? How might this change the way companies do business?
Michelle: For most companies, their sustainability journey started with regulatory compliance and cleaning up spills, then preventing them. Companies have set waste goals, then energy efficiency and carbon emissions goals, and next water. All along, these efforts were driven by companies seeking to minimize risk and reduce costs.
Today, companies are realizing nature is an essential and fragile asset to their businesses. This has led them to look at ways to value nature and to change how they make decisions. They have also seen how nature can produce opportunities and value for their companies, and how it can be another tool for driving innovation and business advantage. Companies viewing conservation as a key business strategy is the next wave. If companies understand and value the benefits nature provides to their bottom line, they will be more likely to plan, manage, and invest in these resources in a smarter way.
At the World Economic Forum in Davos last year our CEO participated in three separate sessions about resource scarcity–this was a key theme of the meeting and is top of mind for country and company leaders. Companies and countries are concerned about availability and access to natural resources as development and competitiveness issues. Companies are seeing climate change and water scarcity affect their business. With climate change, companies dependent on agricultural inputs are changing the geographies of some of their key raw materials, which affects supply chain security. Companies are experiencing water disruptions from drought or competition and are increasingly concerned about sourcing from water scarce areas.
If something has no cost, like water, a company won’t think of its value until there’s a drought or a government says, “We’re doing rotating shut downs” and the company has two days without water. That’s a huge cost. So companies recognize not just a cost, but also an opportunity that helps them with efficiency and influences the type of products and services they develop because they’re anticipating resource scarcity.
With an annual $2 million budget to work with, what specifically do you plan on doing over the next five years? What’s already been started?
Mark: We’re working on a pilot site, but we’re not announcing what that site is. Over the next five years, we’re working on three pilot sites to advance the science of valuing ecosystem services.
Michelle: One of the things we’ll start looking at is the impact of and dependency on ecosystem services for Dow Chemical. Where is Dow depending on water and how is that impacting water in the area? Later, we’ll identify specific opportunities for Dow in order to understand how business decisions affect processes and how the new knowledge of ecosystem services may help the company make better decisions.
So what’s the next step once you determine how ecosystem services affect the business?
Mark: The next step could be in a variety of directions. It could be using the analysis to justify expenditures for efficiency improvement, which wouldn’t be justified if you didn’t have a value for ecosystem services. If you assume water has a price of zero, you might not be efficient in its use. But if you knew it had a cost, you would value it.
Do you anticipate being able to put an actual number value on an ecosystem service?
Mark: Yes, that’s the intention. I know the costs I need to pay for the raw materials to make my product and the costs I need to lay out for capital improvements. I know the prices I have to charge for my products, and I know the costs and benefits of employing workers. But we take the ecosystem services for granted, and the cost of that is not reflected or is zero. And that zero is not going to be true in the future. In the chemical industry, if we open a production facility we expect it to be around for decades, and I can’t value it properly if I don’t assign a price for ecosystem services that I impact and depend upon.
Will ecosystem services play a specific role as Dow looks to expand overseas, where environmental regulation is less stringent? Are you just looking at the United States?
Mark: We’re planning to apply the learning globally from this collaboration. Our pilot sites will be distributed globally.
If your study finds that it is in business’s interest to preserve ecosystems, then what? How can that message be communicated effectively to other businesses?
Michelle: Central to the success of the collaboration is that we share our learning. We’re committed to making the lessons learned public, and then we’re also planning on publishing peer-reviewed results. We do intend to convene business leaders to discuss and analyze our results and look at what we’re missing. Maybe there are ways to tweak the framework and make it applicable to other companies. We do think the work will present tangible outcomes.