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Natural Capital Valuation

Natural capital can be defined as the world’s stocks of natural resources which make human life possible. Businesses rely on this natural capital to produce goods and deliver services. They depend on natural non-renewable resources (for example, fossil fuels and minerals) as well as natural renewable ecosystem goods and services (for example, freshwater and pollination). Businesses also rely on natural capital for its ability to absorb by-products of production such as pollution and water. Business extraction and production activities can damage natural capital with long term economic and social consequences.

These economic and social consequences manifest themselves as physical, regulatory and reputational risks for companies. One of the most useful ways for companies to account for these risks is to quantify and value the environmental impacts generated across their value chains in monetary terms.

Traditional ‘single parameter’ environmental metrics such as cubic meters of water or hectares of land provide an indication of the scale of dependency on ecosystem goods and services or environmental impacts. However, they often fail to identify optimization opportunities for business. Natural capital valuation, on the other hand, provides a deeper insight because it also factors critical environmental parameters such as regional water scarcity and the ecosystem services provided by land.

There are several global and country led projects underway which aim to develop environmental accounts and integrate them with traditional national accounts (GDP) including India. UNPRI, in 2010, estimated the environmental costs due to activities of top 3000 companies at US$ 6 Trillion per year. The Natural Capital Coalition (NCC), for example, is developing a Natural Capital Protocol to provide a standardized approach to natural capital accounting and valuation for businesses.

Wipro, in association with Trucost, completed its first natural capital valuation exercise for the financial year 2013-14. The valuation looks at our global operational footprint - energy related emissions, water consumption, air/water pollution, waste generation and, land use change, business travel, employee commute – as well as the embedded natural capital in all goods and services that we procure from our supply chain. The natural capital embedded in goods and services is primarily based on valuation methodology that is based on Trucost's econometric Input-Output model which incorporates spending across different sub-categories of procurement. Monetization of impacts is based on emerging models and a selection of global and local factors - hence certain assumptions and accounting rules are inherent to the exercise.

In the 2015-16 financial year, the natural capital valuation of the environmental impacts relating to Wipro’s operations and supply chain was equal to INR 11460 million (2.24% of Wipro’s revenue in the same period). This is in line with the global average for the ICT sector. The largest contributions came from GHG emissions (50%), air pollution (19%) and water consumption (19.5%). The operational value chain stage accounted for 36% of Wipro’s total environmental cost. From a geography perspective, as expected, India accounts for 70% of the overall environmental cost. The above figures are “inclusive of our environmental initiatives in emissions reduction and water recycling, i.e. those initiatives which have a net positive impact valuation.

For Wipro, this study provides useful indicators to understand impacts and assess the value of our environmental programs. For external stakeholders like customers and analysts, these data points provide a completely transparent full life-cycle understanding of our environmental footprint.

Chart 1: Consolidated Natural Capital Valuation
Chart 2: Natural Capital Valuation by Value Chain Stage