#02 Business
Kristina Jahn

Competitive Advantage in the Light of Rio+20: Spotlight on Ecopreneurs

The market for sustainable funds has been growing dynamically for years. According to an analysis by the Sustainable Business Institute (SBI), in German-speaking countries alone the volume of sustainable public funds has increased more than tenfold since 2002 to around 32 billion euros (as of Sept. 9, 2010). This list includes all funds that report focusing in particular on social, ecological or ethical criteria and are open to acquisition by all investors.

At the same time the advancing loss of biodiversity and the destruction of intact ecosystems are resulting in a shortage of valuable natural resources. Current predictions commissioned by the United Nations Environment Program Finance Initiative (UNEP FI) and the Principles for Responsible Investment (PRI) value the loss of diversity in species, genes and biotopes caused by humans at 6.6 trillion US dollars a year – this corresponds to more than 11% of the global GDP.

In future this area of conflict could result in opportunities for innovative business concepts with a special focus on protecting biodiversity. Especially for developing countries with high biodiversity this could create new opportunities for economic and social development and for protecting their natural resources.

In developing countries in particular the advancing destruction of nature and loss of biodiversity have assumed alarming proportions in recent years. First of all, the acreage covered by currently protected natural areas is much too small to sustain biodiversity over the long-term. To make matters even worse, many countries do not have the funds and institutional capacity to maintain those protected areas.

Due to poverty and high population growth, many developing countries have no other choice but to use their natural resources economically. In the apparent conflict between the objectives of conservation and economic use, conservation generally loses. Where land use methods that conserve nature cannot be successfully designed to be economically attractive, natural habitats fall victim to ruthless exploitation or agricultural monocultures. In many cases the lasting destruction of biodiversity is the end result. This in turn then destroys any possibility for the ecologically sound use of the area by future generations.

Alternatives are sorely needed. Ruthless exploitation, slash and burn, and monocultures can only be prevented where business concepts in harmony with nature offer a competitive form of land use and give the people in an area alternative means of livelihood. Many experts point to the great potential of an involvement of the private sector.

The "conservation through sustainable use" approach is an explicit goal of the UN Convention on Biological Diversity and is viewed by all large international conservation organisations as a logical and necessary complement to other protective measures that focus on preservation. The World Bank, the OECD and the WWF have identified five types of near-natural use for land outside protected areas that are acceptable from both an economic and from an ecological and social standpoint: nature- and ecotourism, natural forest and plantation management according to ecological criteria, reforestation efforts aimed at winning CO2 reduction certificates as part of the "Clean Development Mechanism" (Kyoto Protocol), sustainable use of wildlife, and ecological farming.

This opens a new range of possibilities for investors, environmental organisations, businesses that apply sustainability principles and, last but not least, politics. Many successful examples of natural tourism and near-natural forest management prove that a whole series of projects that protect nature are economically viable – i.e. they generate a profit – and are therefore interesting opportunities for investors who want to invest in conserving biodiversity. This refers in particular to business concepts aimed at the lasting protection of natural habitats and therefore ensure the conservation of biodiversity (cf. e.g. the PwC study "Sustainable Investments for Conservation - The Business Case for Biodiversity" for the WWF and the PwC study "Ecological Business – Future Prospects for Rural Areas" on behalf of the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety).

Case studies of natural tourism and sustainable forest management in Brazil, Namibia and Costa Rica show that nature conservancy, social needs and positive investment income are not mutually exclusive. In addition to ecological objectives, such projects can also create added social value by offering local populations alternatives to exploiting the tropical native forest, for example.

Based on the Kyoto Protocol, reforestation projects offer additional income potential from the sale of CO2 emissions certificates. The current debate on REDD could also result in new sources of income. REDD stands for Reducing Emission for Deforestation and Degradation. Since emissions from deforestation and degradation account for 20 to 25 percent of the greenhouse gasses produced by human beings, protecting the forests must be incorporated into international climate negotiations.

The basic idea behind REDD is relatively simple and is based on the forest's role as a carbon sink. Assigning the CO2 stored in forests an economic value puts forest conservation on the agenda of economic decision-making processes. In the framework of a REDD system, emissions from tropical deforestation would be recognised and evaluated so that economic incentives could be offered to stop deforestation.

Investors who support this type of project need to pay close attention to the respective political framework conditions and investment risks. To keep project and country-specific risks to as low as possible, a large country and project portfolio would be advisable.

Following the successful conclusion of the 10th Conference of the Parties to Protect Biological Diversity in Nagoya, Japan in October 2010, the issue of biodiversity has increased in importance for many industry sectors. The conference ratified the Nagoya Protocol on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising from their Utilization. It is designed to allow countries rich in biological diversity to charge money to firms who develop medicines or cosmetics from organisms found in rain forests or coral reefs, for example. In concrete terms this means that companies from the pharmaceutical, chemical, food and cosmetics industries need to negotiate a contract with the country of origin or the local community before they begin looking for new active ingredients. In addition to fees and guidelines, this can also include involving the natural ingredient's country of origin in product development or a share of the profits. A market with an estimated annual turnover of 350 billion euros is affected by this new agreement.

To date only very limited use is being made of the approaches and business opportunities described above – very few companies make the protection of nature and biological diversity a noteworthy part of their business. Against the backdrop of the ideal of sustainable development and the upcoming UN Conference for Sustainable Development 2012 ("Rio plus 20") though, innovative solutions to long-term financing for protected areas and for improving the management of important natural resources are more important than ever.

The Rio plus 20 Conference will be the first environmental summit involving state governments and heads of state since the Climate Change Conference in Copenhagen. It is intended to prepare the ground for transforming national economies to "green economies" and establishing an effective UN environmental organisation that combines the key areas of climate, biodiversity and sustainable development.

The issue facing the private sector is how to use the new framework conditions to best promote sustainable business development.