 We are very very pleased to have Pavan Sukhdev Join us here not just at the Nat Cap Symposium today, but also to join WWF. I'm Rebecca Charme the Chief Scientist at WWF We were really fortunate to have Welcome Pavan into WWF as the Chair of the International Board starting January 1st this year Already the conversations that he's inspiring within WWF are shaking things up in the most magical way possible And so I'm so grateful that he joined As you many of you know Mr. Sukhdev has had a long and pioneering career First in international finance, which doesn't always get a great have a great reputation But when it when it actually burst people like Pavan, you know that the potential is there He began at George Bank And then went on to he went on to lead The thinking on a green economy at the UN and has worked tirelessly since then on the future of corporate engagement and building That green economy and a more sustainable world He was a leader at one of the one of the UN's I think really very influential reports Towards a green economy It was a landmark project of the Economic and ecosystems and biodiversity called T more more commonly known as T And it really has changed that report along with the work that was done and the spin-off work from that has really changed the Way we think about how we need to think about how we bring environmental and Aspects into the way we the way we run our economy His his work has won him international claim including the prestigious Gothenburg Award for sustainable development and the blue planet prize And he continues to be a claim for his work, and he is the UNEP Goodwill ambassador For that so I could go on and on and on but most importantly what you should know about Pavan is Y WWF and I found out in my conversations with Pavan and this is like the cool and interesting Creative thinking that we need for sure It was tigers and not finance that brought him to to a green economy think about it the impact the tigers have on the economy It's huge so of course it naturally had this way, but early in his career Pavan thought through As people were saying well the way we could actually save the tiger populations on the planet is just breed them and sell them and their Parts and in doing so you would take the pressure off the wild population and Pavan through his thinking and modeling showed that that is not true that what you actually do when you actually create You actually create the market and then the market then moves to actually want the more elite of the more prestigious elements in that market and so That if you actually bred tigers for sale you would Lead to the extinction of the tiger population globally much faster than if you didn't and that was that was counterintuitive and Everybody in WWF said what but now it's sort of the way we think about The world in WWF, but it's that kind of thinking early on in his career That has permeated his entire career and one of the reasons why we're so grateful to have him at WWF as The international board chair, but even more grateful that he traveled all the way from Florida getting at 5 a.m. This morning To talk to us today for three hours About the signpost to the future Really, he could talk for three hours. So welcome Pavan Thanks, Rebecca. Yes, it was indeed at 5 a.m. That I finally landed up here on a very much delayed flight is Is Anyone in the audience from room 1067 at the hotel by any chance room 1067 to that person I render an unconditional apology because I was given his key I then wandered straight into 1067 to hear a very irate gentleman saying who's this who's there I Didn't tell him who it was, but I now apologize. It was not my mistake. I was given that key But anyway, it's very very pleased to be with with all of you and I'm delighted to be with friends from The world of ecosystems the world of Evaluation the world of natural capital project natural capital coalition and of course most recently the world of WWF It's it's been an amazing journey for me. So today I want to not spend record three hours Even though I did ask for three hours. I'm going to try and finish in one hour, but three topics three topics which I believe are Probably captivating a number of people certainly have captivated me and these are questions that I asked myself Looking back and then looking ahead. So I would like to share these with you and and call them three signposts to the future This image that you see here is inspiring. This is from a corporate partner of ours Called Sviaskor, which is Sweden's largest forestry company. I thank them for the image because to me it it not only Demonstrates an ecosystem service, but it also demonstrates the reason why we are here, which is for the next generation a bit about WWF So this is the the commercial break if you like so But it is an amazing organization. I joined it with many for many good reasons and Today we are supported by 5.4 million members The 767 million euros is the amount of money that we collect and invest in Environmental and natural and projects every year 6,890 is the number of people we have these are permanent full-time employees and they are stretched across 85 different offices which cover 100 and more countries around the world So these are some of the these sort of startling statistics which Impressed me about WWF and are among the reasons why I joined Before the the global goals before the SDGs were brought out the management And the boards of WWF and and there are by the way 34 different boards of national organizations of WWF Just to give you a sense of how extensive is the is the governance network there the management and the boards that come together to Agree on shared ambitions and to agree on seven major goals that they'd set themselves Which in fact when we look back they're not They're not that far from some of the the key targets that have been set within the SDGs in terms of protecting and restoring land and sea areas eliminating illegal wildlife trade Doubling sustainable fisheries halting deforestation keeping the important rivers flowing Harving the impacts of the food system and that's big because if you just look at the value chain climate impacts I've seen estimates from 24 percent to 45 percent of how much of the climate impacts our food system related holistically and having greenhouse gas emissions altogether and These goals the shared ambitions of the WWF network Relate to a whole host of areas of expertise And I'm delighted that I came in at a very exciting time where this huge organization Had recognized that even though it had mission congruence around these various goals and around something called the global compact Which was signed in 2012? It didn't really have strategy congruence because there were 34 independent boards running 34 independent mission driven organizations so the the the joint decision to create a Practice group structure was actually quite gutsy and I must say that impressed me Having come from among other things the world of investment banking and having been in charge as a managing managing director at Deutsche Bank Through two very painful transitions of reorganization I know how difficult that is so hats off to Marco and his board colleagues and all of the other boards for having achieved this And I think this is an alignment along knowledge. So it's not a it's not an ownership It's not about changing whose bosses who but it's really more about creating rills of Collaboration or channels of energy which can be extended beyond the boundaries of WWF So we have actual practice groups who look at Species and oceans and forests and fresh water and food and climate and of course markets finance and governance These are the other three so there are nine practice groups and no doubt and no doubt You people will come across them in your in your interactions Coming to the natural capital project this this slide is probably an old version of of the natural capital projects Areas of shared outcomes, but I was pleased to learn that very early on WWF had collaborated with you on sustainable development planning and on Sustainable livable cities. Sorry on on on standards for the private sector But now of course with this new practice sector new practice groups structure that we have I think that opens up many more areas of collaboration And here's some of the other things that WWF has been involved broadly speaking in the space of natural capital recognizing its value Demonstrating its value and capturing its value countries all the way from Belize and Indonesia to Burma Myanmar and Mozambique a lot of work with Mark your groups on on the natural capital protocol and the sector guides that have come out piloting The natural capital protocol with a few important companies Working on numerous payments for ecosystem services around the world a lot of effort right from the last 60 years of WWF's history the organization was founded in 1960 So a lot of effort on creating protected areas if you like the what was now referred to as the old style of conservation But actually very valuable if you think what it has prevented and what it has achieved and of course many others so today I want to pick on Three areas which I think are all carefully selected because a I'm passionate about them be I think you in the natural capital project And it's many partners around the world And also WWF do have interest in these and these are around three questions one is to do with the the change in thinking as well as the change in terminology and and some of the the background to this transition between ecosystem services and What we now refer to as natus contributions to people Apologies to mark for NCP which is actually the wrong acronym because that could be confused confused with the natural capital protocol So I do have to be careful about using acronyms My second area is is the natural capital protocol itself and therefore the work for the natural capital coalition, which as as you will see my comments in a moment is Probably quite interesting and quite challenging, but also gives us a huge range of opportunities and the third area is that as as you're aware there are institutional Arrangements that are being set up around the world which reflect either the the Work of economists such as in the United Nations environment program in the UN University Which leads towards the inclusive wealth framework, which has four capitals or others which such as such as the IR framework the integrated reporting framework Result in the use of six capitals, and I've even heard of a seventh one called inspirational capital so the challenge that I see there is is one of not just confusing lexicon, but also confusing decision-makers and You can confuse lexicon's at the end of the day That's no big deal, but you don't want to confuse good action And you don't want to create a disconnect between the micro level and the macro level when it comes to economic framing of these Propositions, so I am a bit concerned and I've been wondering a lot as to how to address this and then I would like to Reflect some thoughts on that somewhat vexing matter so to begin with the whole challenge of Ecosystem services what what was wrong with ecosystem services. Is there anything wrong with ecosystem services, and I'm sure there's What 200 people here then there would be Different opinions not necessarily 200, but definitely a plurality of opinions on that topic The way I see it. I think the language that IPPS has evolved nature's contribution to people is a lot less Exclusive than perhaps the language of ecosystem services, and here's the reasons why I think so so the term ecosystem services and the Implications that it generates in in certain minds has is one of the reasons why the Alba countries Bolivia, Colombia, and the others have been very Antipathetic towards the idea of even mentioning the word valuation in the context of nature to them It's almost sacrilege that you know how can we think of pachamama that is mother nature as something that would have an any Economic connotation that's that is heresy. She is sacred. There is no way you can even think of pachamama in economic terms So there's that That's to some extent a reaction to the somewhat Judeo-Christian attitude that sometimes comes through In in terms of man's dominance over nature as against the sort of more traditional attitudes of man being part of nature Another dimension is this presumption of what we call and I'll come back to that in a moment Cartesianism, which is to try and be logical and and very clinical in some ways in Using the term natural capital Because as we in the world of tib had defined natural capital is an economic metaphor for the limited stocks of physical and biological Resources found on earth and of the limited capacity of ecosystems to provide ecosystem services But having said that the moment you say natural capital you need to also accept that it is defined as The net present value of future ecosystem services. So there is an implication that you are going from the term Ecosystem services to natural capital because one sums up after discounting to the other so there are these these connotations which are real and then a Few years back or four or five years ago a number of German and French NGOs were very Antagonized by the idea that somehow or the other we Economists who were thinking in terms of valuation actually quite differently from pricing But the presumption was that this is all one thing I mean surely the moment you say valuation you mean pricing what else can you possibly mean and if you mean pricing that means you Must be financializing this because that's what that's the financial price That's a financial quantity which means you must be commodifying it which means you must be selling it therefore You must be privatizing the commons. So of course these are not Natural assumptions, but you can see how the thinking can go in that direction and that's unfortunately what happens So there was a degree of alienation amongst the NGO community in Europe Especially the German and the French energy or some of them now all of these are Answerable objections and indeed they have been answered in fact There is a document a team document which says team challenges and responses I was one of the authors of that but having written that or co-authored that I realize that this is not about logic This is about the heart. This is about understanding people and being inclusive and therefore I do wish that we had been a bit more inclusive in particular going back ten years Even though we had got very good phrases in English which were punch lines Which explained the difference between valuation and pricing and which explained the importance of valuation as a human institution Which is how we described it in our reports. The fact is nobody reads a 600 page report that is team foundations Nobody very few people read a 450 page reports That's team for policy maker. Some may read team for local policy Because it's only 250 pages and and the business community some of them might claim to read team for business Which is 350 pages, but the fact is that's not what people read people look at the headlines They look at the messages key messages, and you know the simple mistake that we made from our side in team We did not translate those key messages into Spanish Simple fundamental error, and I apologize for that error. It's ten years too late, but anyway that that was my fault I didn't think about it. I was too busy reading and writing and expressing myself in English as one tends to do So I will not do it again next time. We have something like this We will find the right language to describe what we are trying to say in a way that does not force people to read How much is it one thousand four hundred pages some on something like that altogether? Yeah So as one can always be wise in hindsight, of course, but that's that is that is the situation now Those of you who want to read the challenges and responses document recommend it It's only about 20 pages, but it's the response here Which is the logical response, but not the heart response is that well actually all human relationships with nature are valid But in relative contexts Institutions the so now I'm going back to the to the way that T brought in institutions We had the work of Douglas North the Nobel Prize winning economists and Vatten later And these are the definitions that we used in defining institutions and we described valuation as a human institution in the sense that It's one of the rules of the road or it's a kind of constructed set of typifications and rules and we did say that there are different ways of approaching Valuation and that Approaches like Cartesianism would lead in one direction a democratic approach Which has deliberation and social process methods would lead to another approach and the complexity approach would lead to yet another approach And so this was there, but I think the error was not making this plane in different languages to the people who mattered And Specifically on the point of of the Judeo-Christian Culture and beliefs. I think that's something that keeps coming up even now because I think the the recognition In literature is there that there are different ways of looking at man and nature There are also different world views and perceptions in terms of are we homo economicus I? Egotistical utility maximizes in the classical neoclassical tradition or are we people who behave Altruistically and Gaudi who was one of our authors Has actually pulled together some evidence of non retaliatory behavior and non cooperative behavior eliciting cooperative responses, so there are there are many different Perspectives but perhaps the single thing that which I mentioned in terms of the headline that not having the right headline is that we failed to understand that Valor and praise with which these are different words for valuation and pricing actually sound different whether you say it in English or Spanish or Portuguese And we didn't have the Spanish and Portuguese versions of these very simple tib statements Which was what people in the English language world read and understood and probably didn't particularly you know the shrug their shoulders and say yeah Makes sense, but in the non-English language world. This wasn't obvious Particularly what what we did emphasize quite early on is that markets Which is just stating the facts provide prices for private goods and services not public goods But you can use market-based Valuation approaches to estimate values and then press them into policy press them into business practice This is a little cartoon that I love you This is the sort of caricature of what is valuation about this is not what valuation is about What the way that the world of tib approach to valuation is not that you know everything can be measured in money Therefore you can buy and sell it, but rather that it's a human institution and that you can recognize value Recognizing value is is Being visible there for a long time. I mean the oldest national parks I mentioned national parks have been based on recognizing value on on recognizing patrimony The national parks in the US here and in the UK largely were the oldest one were made on that logic that this is something to be Preserved for future generation you can demonstrate value and there are many examples tib the tib reports have something like 40 45 50 different examples of demonstration of value and finally you can capture value and these forms of valuation Can elicit different policy responses? They can translate into regional plans About shing county in fact using the the invest software of the natural capital project That can be legislations like in in to a Bahata reef in the Philippines Where a coral reef area was protected to ensure? Sustainable fishing there can be certifications there can be valuations of protected areas Which is examples of demonstrating value and finally you can capture value through payments of ecosystem services Recognizing of course that Majority of PES are actually between governments either governments on both sides or governments on one side So it's not the autogytical market in that sense the PES only uses market logic to understand What is a fair value to be put into a payment for ecosystem service agreement and If you look at the same five responses you could cluster the top two as being Responses in the nature of norms and regulations and policies then next three in the nature of economic mechanisms And then finally there are some markets examples, but I haven't even covered them So if you look at all of the literature of the team project about 120 odd examples about 50 of them are in the nature of plans and legislations and other 50 60 our certifications PA valuations and payments for ecosystem services and there are 11 exactly 11 markets examples including Wetland markets here in the US and biodiversity markets in Australia and so on So that's actually the world of team and teams perspective on valuation well, I Think what what in in closing what I'll say is that I think the the idea of choosing a Terminology which is more inclusive more respectful of different perspectives is a good idea But at the same time we should not also forget that there is some use of the ecosystem service perspective as well After all we have as a result of that The team for business coalition which became the natural capital coalition which has produced the natural capital protocol Which has upwards of 270? Followers, and I think the the achievement of that is fantastic. I mean if I if I go back 10 years to 2008 If someone had asked me so what do you think out of these four team reports team for policymakers Team for local administrators and policy team for business and team for people this is a website Which of these do you think will have the most impact and fastest? I would have immediately said oh well definitely the local policymakers and then after that may be the national ones and I would have put business third But congratulations mark to you and your team and your collaborators that I would now put you first in terms of where has Been the maximum change of mindset and the maximum willingness to engage I think is actually on the business side So I have been surprised myself by the the results of this this entire history and Presently surprised I should say thank you The the second area that I'd like to discuss is is the natural capital protocol and what happens next So first a quick bit of promotion if I may for what I think is an excellent project the coalition the natural capital coalition is a Large network which consists of about 150 businesses about 50 odd NGOs and a whole host of policymakers and and Conservation organizations and other membership organizations and research houses and finance houses and so on so all together There are about 270 thereabouts right and in the so it's it's a huge network and a powerful network in terms of creating The the awareness that is required for natural capital to be appropriately absorbed and reflected in Policies in decision-making there in the business side and decision-making there Its vision is a world that conserves and enhances natural capital So that can't be very far from anyone's heart who's in this audience today And its purpose is to mainstream the inclusion of natural capital in decision-making Harmonizing the approaches and getting them to scale quickly, and I like the quickly word there We weren't there because as you know that is that is my favorite. We don't have time Only because of that because we don't have time. So these are some of the the companies who Embrace the the protocol and more than 50 have contributed to piloting the program And there's a whole host of other companies who've piloted components of the entire recommendation of the natural capital protocol As you can see that the list is pretty much a who's who I mean there's a large number of very well-known names in that list and The process has been admirable So there was a group led and hosted by the World Business Council Which wrote the actual protocol, which is the the mother document so to speak then that there were two sector guides written almost simultaneously by a group hosted by the IUCN and then now there's as the the the Outreach was was very heartwarming So I understand that more than 40,000 copies of the natural capital coalition and its various documents have been made through your website or through other websites of other organizations and The family of documents has grown. So the dark ones are ones which are ready. The others are either ready to publish or not yet ready and They consist of more sector guides including on forest products and and on the built environment that's coming up and they also include supplementary information in various sectors in terms of finance and and Areas of nature such as oceans and biodiversity. So all in all a very good Effort from the community that represents the world of business and Those who are interested in business as in policymakers administrators Research houses finance and so on Now the questions that strike me as as questions that are still open are the following six Question one is about standardization and how will we we have the protocol? We clearly have guidance. So the question is how do we make that guidance translate to standards Which then can be followed and then can be audited and assured by appropriate assurance bodies Second is how do we operationalize because at the end of the day? the whole discovery process of impacts and dependencies on nature is a discovery process and It's output its first output is just a document which says what are the company's impacts and dependencies on nature? But the but the real point is how do we minimize the negative impacts? How do we minimize the risks which come from the dependencies? What systems do we change what products do we change what clan groups do we change what sourcing do we change? What value chains do we manage what what value chains do we alter? So it's the operationalizing that that really is is key and the question is how do we go from? Measuring to managing Then the third question is to do with transparency is it if you have all this information and if you're a responsible company why would you not be disclosing it if you are responsible then you ought to disclose your impacts on the public and That is that is a vexing question and the fourth is about comprehensiveness because as you'll see in a moment Even though you may begin with questioning environmental impacts and natural capital impacts You will see very quickly that those are not limited by some magical boundary to natural capital In fact, they spill over and that is the whole point into the human space and vice versa happens as well The fifth question is is particularly from my friends in WWF, which is how much is too much? I mean if we have a problem with impacts we need to limit them if there is for instance a world of cement and a world of of energy which is both Which are both using water how much is an appropriate amount of water to to allocate to the world of energy Especially fossil fuel energy nuclear energy and how much to allocate to the world of cement and so on given that there is a limit limitation on the amount that can be used and Finally and perhaps to me where I want to begin with Attempting to give my my take on these questions and finally what do investors want? What do regulators want? What does civil society want? What does the corporate management itself want the C-suite? These are the stakeholders in the corporation our whole purpose here in creating the natural capital coalition and the documents from the protocol and its attendant and its Associated documents is to be able to inform and assist the corporate world into moving forward, but what do its stakeholders think? What do they want next? so let me go there first and just try and address firstly the investor world because Some may argue with me, but I would say that it is really important to focus on the investors at the end of the day It is their decisions that determine the decisions of corporate management or at least the longevity of corporate management whoever is there, so As a couple of surveys were done by Euro SIF and by ACCA some time ago And these were their surprising results, which is that 96 percent of the surveyed investors felt that The sustainability information that was being put out by companies Was not quantitative enough It was just not quantitative enough, and they wanted quantitative KPIs 92 percent said that the non-financial information that represented sustainability was just not Integrated enough into the main reports of the companies. They didn't want a separate little glossy brochure that comes out at Christmas So nobody reads it They actually wanted it in the same place as the financial statements which come out whenever they do at the at the end of the Close to the end of the financial year 84 percent said that they agreed or strongly agreed that Standardization was critical and they didn't see standardization yet, and another 84 percent said that they didn't agree that Companies were clear as to how they had quantified how they had decided what issues and what impacts on material versus non-material so these are so Dispute anyone who says that investors aren't interested in all this. They clearly are interested. They're not satisfied They're not satisfied with today's state of affairs and that tells us where we need to go Specifically if we look at how much of the of the investment universe is actually already Examining sustainability and I got a firsthand indication of that. I was at the annual management conference of the standard and poors of SNP just yesterday they had a whole session on ESG everyone was riveted and listening we had a panel of eight people and It was clear that they were interested There was no question of that and they were aware of the information that I'm sharing with you right now Which is that if we look at the total assets that have been filtered through by investment portfolios through the lens of sustainability? That amount has gone has increased from 13 trillion in 2012 to 23 trillion in 2016 over two reporting periods of two years each That is a massive increase in what is actually not a small asset class at 23 trillion We are now talking about one-tenth of the entire invested Debt and equity on in the world. So this is not boutique anymore. The world of sustainability is now Getting into mainstream and how do companies? I'm sorry. How do investors determine what is sustainable or not like when I said filtered through the lens of sustainability? Well, the lens of sustainability is like the eye of the fly It has many facets and there are many different ways of looking at sustainability But some of the most popular are the ones that I highlight in red out here Which is as you can see negative screening or exclusionary screening is the one that is the most popular And those which are negatively screened the assets are have gone up from 8 trillion to 15 trillion But to me what is really exciting is the fact that the most rapidly growing lens is the one of ESG integration Which means looking at things holistically and together looking at the corporate performance Not as something distinct and to be given to only shareholders whilst you allow these ESG and the sustainability report to be given to us NGOs, whoever we may be in my case WWF But to be given together and that integration is being sought from a corporate strategy perspective as well So that integration lens has grown the fastest from 5.9 trillion to 10.4 trillion in the same period And of course there are other lenses as you can see norms braced cleaning and corporate engagement and so on and so on So that I think in essence what I'd say on the investor side is that yes They are interested they are actually acutely interested and they are dissatisfied and they're looking for more Now what about the C-suite because at the end of the day the corporation as long-term Direction may be decided by which CEOs get voted in or out by boards But it's the CEO and his and his immediate management to decide what the company does so to me there are four reasons for a A sensible company to believe that they should be focused on Sustainability even if their sole purpose is to improve the results of the company The one is that if they are smart about sustainability in terms of resource efficiency energy efficiency And nowadays even energy pricing because solar seems to be getting cheaper than then coal fired Then they should be looking at cost reduction benefits number two that they should be looking at risk reduction benefits as well and In more than one way because externalities of the corporation today's externalities are basically tomorrow's risks tomorrow's Risks are day after tomorrow's costs. So by reducing risk They are eventually going to reduce their costs as well by reducing externalities. They're going to reduce their risks So they need to look at that then on the positive side They need to look at what innovation value can be provided by exploring the technology behind sustainability What new segments what new markets what new niches they can explore Can they target a different product for instance to to the somewhat more heavily oriented Millennials who are understanding more understanding of sustainability issues and last but not the least brand value which has massive benefits for the the Business of the company and also has benefits in terms of the quality of people that you can hire to run to run your company in Future so there is an interest from the C-suite and that's the reason I these are the logical reasons Of course some people doubt this they they tell me and I have some sympathy for that logic Which is that look if it if the manager is a good manager He's good at being profitable and he's good at being sustainable or she is good at being sustainable and profitable So there is a degree of correlation as well here. It's not just about causality. So I like to leave that thought with you as well What about regulators well again, there are strong reasons for them to be asking the natural capital coalition to look ahead and Here's what I think I hear from regulators one generally that a single report is better than lots of different reports Secondly that we need to we that is the regulators and the policymakers need to understand when they are hearing information on Value creation and social value creation. How much what's the quantity and how valid is it is it verified? Can it be audited? Then they are trying to understand business is negative impacts because there is so much Pushback on various different negative impacts in order to introduce new regulations So how much are the negative impacts? So they are looking to quantify there as well So there is the strong interest and lastly there are many countries including as you can see the EU Singapore India and so on who have already introduced national Regulations and I have just listed on the web links. By the way, these slides will be available to the audience here So don't worry too much if your photographs don't look pretty you'll you'll get the original you'll get the originals don't worry about that Another another question and even though it's last but it's not the least which is what does civil society want? Well, I would say two things I think it's looking to value itself like if I'm an NGO like double the berth What is our impact on nature? Like what's the natural capital that we've managed to save or help create or participate in as part of a Constellation of actors. What have we actually done in terms of natural capital? Can we measure us? Right? That's a question and secondly, can we measure others as in can we ask others to put down? appropriately, what is the total negative impact they have and let's then Bilaterally discuss ways of reducing that so I think this is a question that many NGOs are certainly certainly asking already so these are some of the the Reasons why I think stakeholders are looking for more And I know I don't blame them So if you look at today's corporate reporting as an example Here's what it looks like you have financial reporting and non-financial reporting and that goes to different people then within the broadly non-financial space You have got sustainability reporting which has a different meaning and that goes to yet other people who are focused on that and then a kind of Stakeholder reporting which of course in huge shareholders So therefore it cuts across both financial and non-financial and then finally you have the classical CSR reports Which are a subset of the subset and all of these have some users somewhere or the other so the the the effort that a responsible company today has to put in is is Is nightmarish and I call today's corporate reporting a nightmare and I call tomorrow's corporate reporting a dream But unfortunately for two reasons because it's still a dream But I'm hoping that you know with your help with the coalition and and with other parallel Organizations and their collaboration that we can get there because it's we are not that far away It's about making this this jungle coincide and I think you Mark refer to this as the lake into which information dips and from which you can source information so you can think of this as the as the circular lake which is providing all of the inputs that That users of information need It will need clarity however on which capitals you classify with it will need Consistency across different industries and across companies in the industry and it will need connectivity with the SDGs Well without that this information is not sufficiently categorized So it will need that but I do believe this is possible and I want to show you a few glimpses of the future so let's try and address the six questions that that I asked us as as If you like the to do's of the future so here's on the standardization point so typical Situation is that you have black boxes and whether it's just or true cost or whoever it is Who's doing it everyone's or price waterhouse or Ernst and young or whoever everyone's got their own little black box and is busy doing that but thankfully India has taken some leadership in this and the confederation of Indian industry with the help of just which I have Something to do with as well in full disclosure has chosen one framework and one set of methodologies Which are being made public first to the companies and with their agreement to the rest of the world So there's one framework for the country to be able to measure it for any company to be able to measure its natural capital Impacts and one set of and the same one set of methodologies In terms of comprehensiveness is this only about natural capital well for several years now since 2013 companies have been experimenting with a form of integrated reporting. That's called integrated profit and loss It's not the whole of integrated reporting because you also need to have Forward-looking strategy statements and you also need to have risk control reviews In other words looking at risk areas seeing what controls there are and seeing whether the company manages to meet To achieve those controls called quantifying those controls and categorizing them. So But at the same time understanding impacts beyond the shareholder looking at stakeholders understanding in the in the in terms of Natural human social and physical capital. I think that's important and these logos that you see are some of the pioneers in that space over the last few years and I think there's apart from the fact that people are experimenting and doing this I actually think there's a fundamental reason why we have to go beyond one capital It can't only be the natural capital coalition mark so Here's why because if you look at the the chain of impacts you begin with drivers, which are environmental drivers It could be greenhouse gas emissions fresh water pollution etc etc and They will generate certain outcomes which could be environmental outcomes But the impacts in terms of changes in human well-being will not be only be on natural capital if you have if you have Greenhouse gas emissions causing impacts such as storms and cyclones and floods, but also disease vectors increasing then there are impacts Of course on the economy so and there are impacts on on natural capital But there are also impacts on human health. So that that is fundamentally a human capital impact Likewise, if you have employment drivers as in training and investment by the company and its employees It will generate employee skills and productivity which generates human capital impacts And if you have CSR in the company then or if you have programs where youth having trained for instance in doing jobs Which the company has the capacity to train then you will increase Incomes for for the youth reduce unemployment in the youth you will reduce social unrest You may improve law and order and these are elements of social capital So you didn't get into human and social capital and then if you add value in terms of let's say taxes collected which I used Let's say for infrastructure and road transportation Then you will potentially increase productivity of people who are using that transportation system increase incomes reduce unemployment Save costs on transportation and that could have impacts on physical and human as well as natural capital So where you begin and where you end is usually Very often a different box in terms of the capital category and I think we need to recognize that Interlinkage that that we have in in evaluating these spaces The size of human capital impacts is something that I just want to emphasize and the importance of the corporation because not many Realize the role of the company in in its in as a trainer of people a lot of training is imparted This is perhaps an iconic example of emphasis the Indian IT major It's just it was at this time. They exercise was done a Six billion dollar corporation Hiring thirty thousand young Indians every year training them in this somewhat space age looking training complex in a small city called Mangalore in in India and Quite an impressive 320 acre campus which trains for six months 15,000 people each and With 15,000 students and 5,000 staff and teachers That's 20,000 people and that's bigger than Yale University where I used to teach for a while So that's one company one company and it's training apparatus so you can imagine the human capital that is creating because as Employees join this company and as they gather the skills the knowledge the expertise it needs to be not just Intelligent engineers, but now IT engineers they increase their earnings profile from here something like here And you can work out against benchmarks and just revenge mark How much change that has done in terms of their expectations when they join and their expectations two to three or four years later when they Left and that change is the increase in human capital that has been driven by the training program and the brand value and the training Experience in the first few years delivered by the company to its employees When they leave they carry all that knowledge and expertise with them They are exporting therefore the company is de facto exporting human capital. That's a positive externality It is huge for this six billion dollar company that positive externality was in the range of one to one point two billion dollars per annum so that's the the the human capital value that it's Generating and imparting to the outside world every year sending people off or being hired from them to join IBM out here or Or joining companies in the UK and Australia or any or for that matter any English language speaking part of the world Infosys actually published these externality numbers and they actually kept producing them to create a data series for the next several years They did that themselves. We just audited audited this for them Axon the Bell produced an IP. They're a chemicals giant in Europe produce an integrated profit and loss in 2014 Here's what it looked like and they actually analyzed this for their Brazilian business operations six factories or the whole of the Brazilian business operation, which was a part of their pulp a very important part of their pulp and performance chemicals division in fact the second largest after Sweden Amata is an amazing and Sustainable forestry company in Brazil Logging at two trees per hectare per year across five different locations and they produced an integrated profit and loss in 2015 Yarra Valley water that is Melbourne's water utility for then this was not a not an option They had to go this way as they felt because their purpose the the state of Victoria defined their purpose as achieving Livability in Melbourne and Melbourne's been voted the most livable city by none other than the Economist Intelligence unit now for six years running. So clearly there is some value being delivered here the the Yarra Valley water water utility essentially are now Internalizing these results and they have decided that they want to double the amount of social value They had created some social value as a result of their programs and they wish to target double that amount of social value creation by 2020 So we've been asked to help them in identifying projects and programs Which would help them to do that so actually looking to increase their positive externalities So this is a lot of commitment being shown by a lot of leaders So I suspect the challenge here is going to be how do we take this forward? How do we take this forward and remember this is all being done on a holistic basis? This is not purely a natural capital focus This is looking at human social and natural capital altogether as well as of course physical capital Another question that I asked was how much is too much? Well, there's some this is very very challenging because how do you on what ethics and on what logical grounds? Do you allocate a scarce resource between different industries and who are you to do that allocation? But at the same time to not ask the question is a challenge because then we are not being real So I think the question does need to be asked I think people need to state their assumptions and explore this space as indeed WWF and its partners are doing these days. I Haven't addressed two of the questions, but on the one on operationalization I understand that already is it 30% of the companies that are in the natural capital Coalition have in fact already started using the results So that's a good sign and I guess your challenge then becomes how do you do we take that from a 30% to a 90 80 90 percent and When it comes to transparency, I mean to be honest I Think this is just an ethical choice and I would like to ask the question to anyone who says that they don't wish to disclose I will just ask one very simple question if you are a responsible corporation Tell me the reason why you would not want to disclose your impacts to the public and That's all I have to say on this point because it is about ethics Now I moved to my last topic of conversation Sorry, I'm sorry for not giving you something more intellectual on that particular one. It is much more simple So on last my last topic is on this issue of coherence between different capital frameworks because a lot of people in different Ways and and in different communities are using the language of capitals And I am just beginning to get a bit concerned, but let me begin with the good news is that Professor Partha Das Gupta who I respect as one of my gurus is Outstanding for many reasons, but his ability to express complex ideas in simple language and to do it so beautifully Is seen by this little extract I have from his forward to the inclusive wealth report of 2014 that was produced by the United Nations environment and by UN University and in which he says he talks about the four Capital categories and says that inclusive wealth is the social value of an economies capital assets which comprise Manufactured capital roads buildings machines equipment, etc. Human capital that skills education health natural capital that subsoil resources Ecosystems the atmosphere and then he goes on to explain social capital thus He says such are the durable assets as knowledge institutions culture religion more broadly social capital are taken to be enabling assets That is assets that enable the production and allocation of assets in the other three categories and the effectiveness of enabling assets in a country gets reflected in the shadow prices of assets in the other three categories in Other words if you have an economy, which is lacking in social capital not enough regulation No in no law and order lack of a proper constitution poor relationships poor more days in society Communal disharmony misbehavior and so on so if you have that kind of Society then chances are that it will not have an effectively run economy the law of Contract will not be followed contracts will not be honored business will become difficult violations of all forms of social agreement will be the consequence and we will have Poor outcomes in other words the assets of natural capital will get pillaged so they don't get properly distributed and used Physical assets will not get the returns that they deserve and human assets as in our skills and ability Will not get the returns that we deserve because our employers may not pay us because they don't have social capital so this is the situation where we have four capitals and The the fourth one social capital does not have an independent income generating function But in its absence the ability of the other three to generate income is significantly Disabled and that disimperiment can actually be measured and valued and that's the way to value social capital And that's how we do it as well The inclusive wealth report is in my opinion a true balance sheet of nations and this Diagram comes from the latest version. That is the 2018 inclusive wealth report And in this they they show a bit of a challenging story Which is that there has been no doubt an increase between 1990 and 2015 sorry 2014 of manufactured as in physical capital and Human capital, but there has simultaneously been a very serious decline in natural capital and please note these are per capita numbers This is human social human natural and physical capital per capita No doubt this is the reason why President Putin thinks climate change is a good idea because There seems to be robust growth of natural capital based on the statistics in Russia But there's not the case generally in most other countries as you can see and If we look at the year-on-year changes against the story becomes obvious that there has been a gradual increase in physical capital per capita and a Gradual increase in human capital and the blue dots a gradual simultaneous decrease in natural capital per capita And that is the challenge because that lack of natural capital is putting everything at risk Another interesting conclusion from the inclusive wealth reports and this one is from the 2014 is this diagram which shows the distribution as a fraction as a percentage of Natural capital out of total capital per capita Versus that's on the x-axis and on the y-axis human capital And what this shows you is the dark dots the black dots no surprises These are the developed world and it shows you also the low-income companies Which are in the high natural capital per capita in the bottom right-hand corner, but also very low income To me the challenge of development planners and development economists is how do you build natural capital to a point where? The look and feel of the developing countries more and more like that of the developed country which means Not to deplete natural capital, which is the GDP of the poor or as a large part of the GDP of the poor But rather to build human capital, which means maybe counter-intuitively focusing on not just the overall area of the country but focusing on cities as the engines of human productivity on Focusing on not just the hardware of cities not the buildings and the infrastructure But actually the software of cities. How do we create creativity? How do we create lifestyle? How do we make cities interesting places for smart young people to live and grow and develop? How do we actually aggregate these people into larger and larger pools of talent so that those pools gather critical mass so that they Actually become globally competitive so that the city economy can thrive and compete and be successful To me that is the key challenge of development economists today and those who keep arguing still despite this common sense And despite the evidence that we present here that Oh, no, there's a trade-off between environment and development I think they've got it completely wrong. I think they fail to understand two important equations One is that if you look at let us say Brazil Indonesia and India and we have in team We have done these studies if we look at ecosystem services as a fraction of the household incomes of poor communities And we will find they are a very large fraction between 45 and 90 percent in some cases in Indonesia We've actually tested this right down to the province level as well So that's one thing that miss and the other thing that miss is the importance of developing human capital and Using that as the driver of in of innovation and using that innovation as a driver of economic success I think This this report is important for all kinds of reasons not just of course the fact that it gets the capital's lexicon right Now having said that Given that the UN has adopted a capital's lexicon, which is four capitals How much sense does it make for us all of us now focusing on the corporate space to develop a lexicon at the micro level which has not the same four capitals and in my opinion very little sense and I've tried to adapt that four capitals lexicon to our space in the following way Recognizing that the three Types of capital are physical human and natural and that these are the ones that earn income Here's a diagram which illustrates by example the various Objects if you like the various assets which fall into these various categories the physical capital on the top left-hand box Are basically privately owned physical capital items Human capital privately owned is by the individual but there can be human capital as in traditional community knowledge That's owned by the community and to which for which it deserves compensation if it's taken and please note That social capital is a binding force. It's not a separate column, but it's rather a horizontal cross-cutting row that social capital Exists not just in private ownership But in community ownership and in public ownership and perhaps the surprising one is that it exists even in private ownership Because markets are generally trading private goods and services in fact only trading private goods and services And if you did not have social capital in markets in other words if you didn't have properly designed market rules and regulations if you didn't have the law of contract if you didn't have Etiquette indeed amongst the market makers to provide prices with which the market Therefore gets from which the market gets depth and liquidity liquidity as in the ability to transact a large amount without Changing the price death basing many people able to give you a price if you didn't have all that that social capital Then what kind of market would you be left with? So actually even the private side of this picture of capitals does require social capital And of course the community is all about social capital and of course There is a huge range of social capital that is necessary when it comes to managing public goods whether they are physical public goods like roads and bridges and and toll gates and Hospitals and so on or whether it's natural public goods like the ICs National parks and so on so these are examples where now the point I will make here, which is very simple Which is that if you have a large multinational corporation? What we are asking it to report is basically whatever is in the top left-hand box In other words the physical capital owned by shareholder its balance sheet of last year versus its balance sheet of this year is basically the top left-hand box and Yet tell me the large multinational corporation, which doesn't provide health insurance services for its employees Which doesn't train them and doesn't provide job skills, which tell me which? Pharmaceutical company does not use traditional community knowledge Tell me which company does not either use or put into public knowledge Wikipedia type of data Tell me which company in transportation does not use roads and bridges Tell me which company which is in fisheries does not use the high seas or does not if it's in logging not use Publicly owned parks and and so on so I think this entire space of capitals be it privately owned community owned or publicly owned actually is the space in which companies operate they have impacts on all of these and Unfortunately, they are not being asked to report anything other than the top left-hand box and that is the challenge And how do we get them moving out from there? And this is why when we talk about integrated reporting we need to look at reporting the externalities in each of these boxes and these are just Terms that we use at HCX is human capital externalities NCX is natural capital externalities The reason it says trademarks is that I I didn't want them to be misused But getting the ability to use for anybody in this audience is just one email away just write us an email and we'll reply saying Here's the definitions. Please use only these definitions confirm You will write a second email confirming it and that's it the trademark is yours. That's all it needs But we don't want these terms misused. That's the reason why it's trademarked The questions that I want to Answer which must be in the in the minds of some of you is but what about intellectual capital? I IRC the International Integrated Reporting Council has intellectual capital Well, the fact is that intellectual capital in this day and age is embedded in almost every other kind of capital I mean this box of tissues out here very thoughtfully placed has intellectual capital. There's technology in making this box There's huge technology in making this tissue There's massive technology in this of course these are all Intellectual capitals, but they're embedded in a physical capital privately owned I can buy this I can sell that In the same way education and skills are human capital, which is intellectual in nature I have some of those you have some of those We may belong to a traditional community or we may belong to other communities which we have community or shared knowledge So that would be human capital in in in the community space And of course even in natural capital there is potential for biomimicry, which I would say is natural capital in public ownership So potential intellectual capital from nature, which is in public ownership waiting for us to discover it and make use of it So there is intellectual capital everywhere and in all of these boxes therefore there is intellectual capital We don't need to create a new category for that. That's the point. I'm making here and in essence The question generally that is often asked is but what about the six capitals approach? How does this these four capitals of the United Nations? Report inclusive of square with that well they do because as we open up the four Categories we find that many are similar physical capital is basically financial plus manufactured That's the IRC human capital is human socialist social and natural is natural and the intellectual capital I've just explained it lies in one of different boxes one of these five different boxes of Intellectual capital be it human physical or natural So I think there is every reason to be optimistic. These are complex problems I don't wish to belittle them, but they can be solved and Over to all of you to help us solve them. Thank you. I'm going to try to articulate this Vague question, but you had different books for policy And you spent this discussion talking about the private sector, but I'm wondering if the public sector regulatory system policy environment is going to be there to mitigate risks that Investors would see and many of the countries We work in the investors aren't going into How did the policy community react? to what you put out there a few years ago in those tomes and How are you adjusting the way you're now engaging? policymakers to Encourage them to the use this because once they do Principle the investors will flock in to a de-risk environment. Yes, you're quite right about that So my own view on how to engage policy makers has changed over the last ten years If you had asked me this question ten years ago I would have said present them the analysis and hound them until they agree with you and then make changes I I don't do that anymore because it doesn't work So my my new theory of change not new because it's there in cooperation 2020 since 2012 is that we need to work with The private sector to impress upon the public sector because there is so much of policy capture that is prevalent in every Nation and be it developed nations or developing nations There is so much policy capture by the private sector that you really can't get policy to change without leveraging the the inroads of the private sector into the policy space and The reasons are not difficult to see because if you look at the report card of any politician today It's about GDP growth. Well, two-thirds of that comes from the private sector It's about jobs again two-thirds on average and in the US 74 percent come from the private sector If you if you look at the third point in the report card of the politician is these days fiscal gap management So after income tax normally cooperation taxes the second most important source of revenue. So again Corporation and fourthly, of course campaign funding where maybe some would argue more than a hundred percent come from the private sector So so if you look at the four things that make the report card of a politician as to why he should be or she Should be elected next year all four boxes are ticked by the corporation So why would a politician not listen to the corporation and that's been my refrain For some time now and hence the need to work with the private sector But to get to the private sector to make them make the changes. I think you need a groundswell of public opinion Coming through Citizens and I don't want to belittle this because they it's not just about the consumer voting with her pocket Which is the sentence that you will hear very often, but it's also the citizen voting with her voice And making it plain that certain things are or are not acceptable Drawing the ethical line between what is acceptable and not and I think that does make a difference to the responsible CEO and I think all of us can see that the the sort of results that we saw at at the Paris cop in 2015 could not have been possible had not the private sector spoken with one voice Saying that look this is not an acceptable state of affairs We support the idea of an agreement had that groundswell of people pressure and and Corporate leadership not being unanimous in there in there or near unanimous and not including the cock brothers and so on but Near unanimous in there in their communication to the to the policy space that may not have happened So I would say you you're you're dead right that without the policymaker without the rules and regulations being Appropriately managed without the the social capital the structures that create social capital being being a put in place There's very little hope for a Sensible investor interest in any in any nation or any jurisdiction, but how to get there I think that's what I'm saying is probably needs to be more nuanced and more more complex Recognizing the the theory of change from people to corporations and then from there to the policy makers Thank you very much for that enlightening talk I I really liked that graph that you saw Which emphasized on the? We don't have to always look at trade-offs between certain capitals, but there is ways there are ways to Increase both of them. So both are like more capitals at the same time. Yes Along that line, do you have some suggestions or some thoughts towards Some specific things that we could do or some sectors some Innovations that we should focus on so that we can shift that production possibility frontier forward and increase the production of natural capital as well as other capitals Well, I think the point that you make generally is correct But I think the the proof of the pudding is in the eating So it does become very challenging to to be able to Move the needle of production of natural goods and services simply because they are in the public space you can well It should be ethically it should be the role of Governments to invest in public capital at the end of the day if if public equity is not invest in public capital then what will be but at the same time there is a lot of private interest philanthropic interest and NGO interest and unfortunately, it's difficult to Go much beyond that because the reality is that private capital chases private returns and Even when private capital is philanthropic For the sake of argument plants a forest and there's evapotranspiration and yes There will be clouds and yes, there will be rainfall, but you cannot tell the clouds where to rain So the nature of the public good is such that it defies market logic And therefore there's only a limited amount of market logic that can be used to actually achieve the results that you seek Which is an increase in the production frontier of natural goods and services of of ecosystem services or Nature's contribution to people so we need to involve the policy space But of course as the lady here mentioned that the nature of the engagement of the nature of the involvement of policy space is Unfortunately more complicated perhaps than just producing good research and giving it to the policymaker in regards to the the Truly heartfelt and thoughtful Distinction that is made in Teeb and in this community between value and price it seems inevitable that as private investments and and financiers See the the potential value of natural capital as an asset class That there will be countries in the lower right corner of that of that Wonderfully linear line. That's it's so peculiar. Is he simply at that? Global economics, but it seems almost inevitable that there's going to be cases where Countries in that region in that quadrant Will be tempted to engage in securitization of natural capital assets and ecosystem services what sorts of Mechanisms institutions oversight cautionary tales can be deployed to prevent that That's a great question. And thank you. There are actually quite a few Success stories as well as I would say failure stories which which are there in in the various Teeb reports as what what did and did not work I think the the important thing is to look at look at it from the point of view of The jurisdiction that enable the enabling jurisdiction so it could be a province It could be a country it could be even deep or down right down to a small district and to see what happens So I think understanding things that work or don't work from a community perspective a district perspective or a province or state perspective becomes really important But even at those levels what we will find is that the private sector plays a role Could be disruptive could be constructive as the case may be and very often the choice between all the whether it is Constructive or destructive depends on numerous factors which are social which are whether they are a local company or a multinational Whether they are accountable and members of the local community or not members of the local community Because at the end of the day they are the they are the pools of capital that are needed for any change Whether it's paying for ecosystem services or whether it's planting a forest or whatever it is that we are trying to achieve on the ground the largest pool is private capital and the question is how to leverage how to Bring it bring that private capital into public service because it will not automatically do that That is the challenge. They will have to be incentives and distance by by its definition and its nature private capital will chase private returns And then we have to figure out ways. How do we make the exception work? So in that sense, we are always struggling against this fundamental law of human nature if I may say so And I think there are many lessons to be learned there. So there are numerous numerous Positive stories as well where incentives have been carefully designed to enable Communities to work with Corporations in the better maintenance of tracks of land the better management of tracks of land or or a forest Or a wetlands and so on. So I think this It's it's a space worth considering so it it is it is the case that as We begin to start Using economic logic and valuations to go back to your your starting point as we start using the Logic of economics to try and say this is an appropriate reward or this is an appropriate compensation there will be some degree of of Monetization there will be some degree of if you like the entering of the private interests But the whole challenge lies and how do you make that private interest work in the public good? And that's never a straightforward. It's not just about opening up the market. That doesn't work Right join me in thanking Pavan for that that really wonderful talk