Source: The Conversation (Au and NZ) – By Paul Griffin, Distinguished Emeritus Professor of Management, University of California, Davis
When rivers degrade, pests spread or drought hits crops, nature sends a bill.
Yet it’s one rarely itemised on any balance sheet, because nature’s contribution to business remains genuinely hard to quantify.
One major obstacle is data. Businesses rarely disclose their precise operating locations, while detailed ecological information that can be linked to specific firms is scarce in most countries.
This is despite healthy ecosystems underpinning large parts of the economy, from agriculture and forestry to tourism and food production. As the US economist Herman Daly famously put it, the economy is “a wholly owned subsidiary of the environment, not the reverse”.
As part of a growing body of global research now trying to put hard numbers on what nature actually contributes to the economy, we looked at New Zealand’s case.
Our newly completed research turned up a compelling finding: firms operating in areas with richer biodiversity are measurably more productive.
Measuring nature’s value
We chose New Zealand because it publishes detailed sets of business and environmental data. That allowed us to compare company performance with local ecological conditions across different regions.
We combined measures of sales and employment with biodiversity indicators – including river health, drought risk, land use and invasive species – used as part of international reporting obligations.
We also drew on the Cobb-Douglas economic model – commonly used to estimate how labour and investment drive economic output – to help get a clearer picture of nature’s economic contribution as a factor of production.
We found businesses operating in areas with healthier ecosystems tended to generate higher sales and profits.
Across more than 117,000 observations spanning 2009 to 2022, a 1% increase in natural capital was associated with sales about 0.13% higher and profits about 0.15% higher on average. The relationship remained consistent across multiple measures of biodiversity and ecosystem health.
We also found a trade-off. Areas with more roads, buildings and commercial activity tended to have lower biodiversity scores but higher sales. In other words, businesses can still grow while degrading nature – but may lose some of the productivity benefits healthy ecosystems provide.
When green policy boosts productivity
We also tested whether major environmental policies changed this relationship.
One was New Zealand’s Predator Free 2050 programme. The other was a broader package of reforms introduced from 2017, including freshwater rules, tree-planting incentives, restrictions on offshore oil and gas exploration, limits on single-use plastics and the Zero Carbon Act.
Because these policies targeted ecosystems rather than directly subsidising firms, they helped us test whether improvements in nature were linked to changes in business performance.
We found the relationship between healthy ecosystems and business performance became even stronger following both interventions, with the productivity effect associated with 1% more natural capital increasing business performance by a further 0.05%. The effect was strongest in the year immediately afterwards.
This suggests investment in ecological restoration and protection can generate economic benefits beyond the environmental sector itself.
The strongest effects appeared in agriculture and forestry, where business outcomes are closely tied to the health of surrounding ecosystems.
Farms and forestry operations in less intensively developed areas – with lower population density and less infrastructure – showed markedly stronger productivity gains linked to natural capital.
In these primary industry regions, a 1% increase in natural capital was associated with sales that were additionally higher by 0.71% to 0.81% above the economy-wide average.
This is unsurprising. Healthy soils, clean water, fewer pests and intact native vegetation can support food and fibre production while lowering costs.
The benefits were also evident in service industries, construction and retail, although spread more evenly across a broader range of ecological factors.
An unseen benefit
These New Zealand insights are important for the growing global effort to better understand the economic value of nature. Globally, the services ecosystems provide to business are estimated to be worth trillions of dollars annually.
While new frameworks such as the international Taskforce on Nature-related Financial Disclosures are beginning to emerge, hard evidence linking ecological conditions to firm-level productivity has remained limited.
Our study suggests biodiversity is not simply an environmental concern. Differences in ecosystem health across regions and industries are associated with measurable differences in business performance.
Businesses should view the natural environment as a productive asset every bit as real as machinery or labour, not just background scenery.
And for policymakers – particularly in countries reliant on primary industries, such as New Zealand and Australia – ecological investment and economic productivity shouldn’t be taken as opposing goals.
Nature, it turns out, has been doing more economic work than some have given it credit for.
– ref. Nature is good for business – and we now have numbers to show it – https://theconversation.com/nature-is-good-for-business-and-we-now-have-numbers-to-show-it-283052