January 9, 2014
Business Resilience Comes from Working with Nature
[Note: This post is co-authored with Michelle Lapinski, a senior advisor on valuing nature at The Nature Conservancy]
Hurricane Sandy, the superstorm that pummeled the U.S. northeast in October 2012, ranks as the second-costliest hurricane in American history, causing an estimated $68 billion in damages. One year later, the most powerful storm ever recorded to hit land devastated the Philippines.
With these once extraordinary events becoming more ordinary, it’s becoming clearer that businesses in vulnerable regions need to prepare. But how should companies go about building resilient enterprises that are ready to face extreme weather and other effects of climate change? One powerful, underleveraged option is to use nature to protect our coasts and physical assets — that is, to invest in so-called “green infrastructure” a term meant to differentiate projects from more typical “gray” or man-made infrastructure solutions (such as dams, levees, and water treatment systems) that we build to cool and purify water or defend our buildings and assets against the elements.
Our natural world already provides immensely valuable services to make our economy and society possible. Most obviously, we get all our food, minerals, and metals from the ground, and forests provide wood and oxygen. But there are more subtle benefits: forests also clean our water and coastal wetlands and reefs provide natural defense from storms and floods. They can help us manage rainwater and wastewater. These services, which are not currently valued in the marketplace, protect both people and commercial and residential assets.
So a city or company looking to safeguard its water supply, for example, could invest in protecting or restoring lands instead of building a new water treatment plant (which is exactly what the New York City did when it bought land in the Catskill Mountains in 1997 — this initiative avoided up to $8 billion in costs for a new filtration facility and saved $200-$300 million in ongoing operation and maintenance costs).
But is this kind of green infrastructure approach generally as effective? Is it cost competitive? A recent paper by Shell, Dow, Swiss Re, Unilever and The Nature Conservancy concludes that frequently, it is.
Using standard cost-benefit analysis, the study compared some natural solutions to more traditional infrastructure investments. In all of the completed corporate projects, the green option won out toe-to-toe on capital expenditures and operational expenditures
Here’s one of the more compelling examples highlighted in the paper:
One of Shell’s joint ventures, Petroleum Development Oman LLC (PDO), uses constructed wetlands to treat produced water from oilfields. PDO’s extraction activities produce a lot of oily water as a by-product. After investigating alternative, low cost solutions to treat and dispose of the water, PDO built a natural wetland system that uses sunlight, reeds, and gravity (to flow water down in steps) in place of extensive water treatment and injection operations. The latter, gray option would have required significant electric power and produced high greenhouse gas emissions… and it would’ve cost a lot more.
On every important measure — capital expenditure, operational expenditure, and performance — the constructed wetland outperformed the traditional approach. Power consumption and CO2 emissions were reduced by 98%, which lowered operating expenses dramatically. And as a bonus, the wetland provides habitat for fish and hundreds of species of migratory birds.
In this particular case, PDO only needed the natural option, but the study concluded that hybrid solutions – combinations of green and gray infrastructure — may often provide the best mix of benefits. Together, green and gray solutions combine some of the resilience inherent in natural systems with the way an engineered solution can solve a specific challenge.
Shell isn’t the only company that discovered the savings from green infrastructure. The report includes case studies for Dow, which also utilized a constructed wetland at one of its facilities, reducing capex expense by a factor of 10. Today, Dow is exploring additional applications of green infrastructure and is engaged in a multi-year collaboration with The Nature Conservancy on valuing ecosystem services, which includes evaluating the viability of natural infrastructure at its largest production site.
Companies with common challenges can identify savvy, shared investments in green solutions for wastewater treatment, desalination, or coastal defense (using, say, wetland and reef restoration) and potentially collaborate on new green infrastructure opportunities at co-located assets.
Collectively, the companies in the report concluded that green infrastructure solutions should become a major part of the modern engineer’s standard toolkit: “Incorporating nature into man-made infrastructure can improve business resilience —and bring additional economic, environmental and socio-political benefits.” The report also provides an emerging set of performance metrics that managers can use to assess and compare green and grey infrastructure options.
As the damages from (and costs of) extreme weather and other disruptions soar, investing in resilience becomes a better deal. And nature can provide many of the solutions we need to both save money and protect our assets. So run the numbers on green infrastructure solutions. The calculations are likely to show that green options are the best investments.
(This post first appeared on the Harvard Business Review blog network.)