New natural capital metric a ‘powerful lever for change’, says Kering

EXCLUSIVE: A new natural capital biodiversity metric will act as an "internal change management tool" that allows companies to define and translate what environmental footprints look like in a business context, Kering's head of sustainable sourcing innovation has claimed.

Kering has joined with companies including Mars, Asda and Interserve to help launch the metric today (22 May). The framework of this partnership couples metrics from the Cambridge Institute for Sustainability Leadership’s Natural Capital Impact Group (NCIG) and the Investment Leaders Group (ILG) to create criteria that links and communicates analysis of ecosystem impacts with investment portfolio risks.

The aim of the metric is to capture the less tangible benefits of biodiversity impact to create a methodology that ranks businesses on how they interact with ecosystems and the environment, which investors can then use to track their portfolios.

For Kering’s head of sustainable sourcing innovation Helen Crowley, the new metric will be a “very powerful lever for change” due to the inclusion of the ILG. This collaboration, Crowley notes, will create the business case for natural capital due to investor pressure and the simplistic scoring metric.

“What’s exciting about this [metric] is that the investors are coming along with us on this particular journey,” Crowley said. “They can leverage change the fastest within companies that aren’t yet taking this on. It’s got science and data under the hood but will be simple to use so it’s going to be a very powerful lever for change. It’s a powerful, internal change management tool to help define what sustainability looks like in the context of a business.

“Our own metric has shown very clearly that if you can articulate these quite complex environmental issues about water scarcity and emissions, and you can translate that into a language that business understands and you can generate change very quickly. This new metric allows us to translate data from the academic and conservational community into something we can use for strategic decisions.”

The new metric aims to create a business case for investors and companies to demonstrate positive impacts and show they are reversing the trend of natural environment degradation. This metric focuses on the impact of a company on the quality and quantity of biodiversity, soil and water.

Kering – which owns fashion brands such as Alexander McQueen, Gucci and Stella McCartney – uses an internal environmental profit and loss (EP&L) account, which places a monetary value on the financial costs and benefits generated by the entire company’s environmental impact, both within its own operations and across all of its supply chains.

The luxury fashion group is aiming to reduce the account by 40% by 2025, and applying monetary values to its supply chain impact has enabled Kering to map its sourcing habits in relation to water and land use and introduce new measures to reduce impact.

Through the EP&L, Kering learnt that 90% of its environmental impact was in the supply chain, and that 70% of that figure was in relation to sourcing raw materials such as cotton.

Corporate understanding

The company also was consulted on the initial draft of the Natural Capital Protocol, which offers businesses a standardised framework to measure impacts on natural assets, raw materials and natural infrastructure.

But as the Cambridge Institute for Sustainability Leadership’s natural resource portfolio director Dr Gemma Cranston explains, a single metric could be much more decisive.

“A need has been identified for a single natural capital impact metric which is simple and influential to decision making across corporates and investors,” Cranston said. “There’s lots of guidance and advice on natural capital, but in terms of having something simple and practical we found that there wasn’t something that was working for corporates to use across the board.

“The metric has flexibility to use accurate, robust data and provide a score for a company, even if they don’t have all the information on their supply chain. Those with better transparency, will be more likely to improve their score and gain better brand reputation and competitiveness. The metric will create impact and encourage the companies to make changes and demonstrate progress.”

Kering and Crowley believe that this new metric will be the first methodology to “cover biodiversity at a corporate level”. Arguments have been made that companies treat natural resources such as water, forests, and metals as ‘infinite’ are guilty of “extreme short-termism” by ignoring natural capital.

While metrics, such as today’s launch and the Protocol, exist to assist businesses, some still argue that placing a monetary value on the environment could lead to a deprecation of environmental issues in favour of other business considerations.

Earlier this month, Richard Carter, the head of sustainability and finance at UK brewer Adnams, claimed that natural capital accounting can be a “disaster” for sustainability professionals and is not an effective way of engaging the finance community with environmental issues.

The involvement of ILG in the new metric will likely help investors to “embed natural capital into decision-making”, as suggested by Mars Incorporated’s global sustainability programme director Adrian Greet.

However, Crowley was keen to note that while natural capital accounting was an effective way of communicating with the board, the new metric would provide a more simplistic communications tool that kept stakeholders engaged with business actions due to the ILG’s involvement.

“It’s very clear that monetisation is a communications construct,” Crowley added. “But the timeframes for impacts are different. You might gain something in the short term but lose all that capital if you undermine nature for short-term capital gain. I still think [natural capital accounting] is an absolutely powerful and essential tool for us to orientate business towards a more sustainable operation. But, it’s not perfect and we need to be clear as to what it does and doesn’t do.

“We can make more robust decisions on where we source and how we source and where we can leverage change through this metric. We need to keep our stakeholders engaged all the time as we uncover and make these changes.”

Matt Mace

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