Corporate valuation and positive externalities – results of a new study

Most economic activities involve the consumption of raw materials. But despite this clear dependency on natural capital, many businesses have in the past only paid attention to those raw materials which they had to pay for, either because these were market commodities or because the government had put a price on them (e.g. an environmental tax). Within some parts of the business community there is a growing recognition of the need to account for natural capital in order to be able to safeguard the long-term success of the company. However there has been little research to date into the most appropriate methods for this novel form of corporate accounting. Dan van der Horst, University of Edinburgh and Colm Bowe, Liverpool John Moores University, have just published a working paper which contains a detailed assessment of the agricultural externalities associated with a company’s farm extension services, using as a case study SABMiller’s malting barley production programme in Rajasthan, India. We found that farmer uptake of best practice farming advice can reduce water consumption and CO2 emissions of farming activities, whilst significantly increasing the income of small scale farmers. The company has the ability to further increase farmer income by promoting agronomic best practice for all crops, not just barley. However we also found that the level of reduction of carbon emissions and groundwater depletion which can be achieved by SABMiller through its extension services, cannot be enough to stabilise groundwater use in the area; collective action is required, involving the relevant government bodies, commercial water users and the many smaller consumers. This was one of the first studies in the world which quantified and monetised the positive socio-economic and environmental externalities associated with the collaboration between individual farmers who are craving agricultural advice, new products and new markets, and a company’s agronomic advisors, who need to build up social relations with the farmers by demonstrating both trust-worthiness and competence with regards to growing barley and other crops. Funded by the Valuing Nature Network (http://www.valuing-nature.net/ ) and coordinated by the Cambridge Programme for Sustainability Leadership who linked up academic experts with participating companies, our case study has now been used as the lead example in a new practical guide to corporate environmental externality assessment. For this practical guide or our working paper, please send an email to dan.vanderhorst@ed.ac.uk or click on http://www.cpsl.cam.ac.uk/natcap