The True Cost of American Food, San Francisco, USA, 16 April 2016

SUSTAINABILITY METHODS AND METRICS

NADIA EL-HAGE SCIALABBA

Senior Natural Resources Officer, FAO Climate and Environment Division

COMMENTS ON THE EBBRAT MODEL

(Ecosystem-based business risk analysis tool)

Taking ecosystem services as the focus for determining reliance on all natural resources (including atmosphere, land, water and

biodiversity) is brilliant for environmental assessment – but social wellbeing aspects may be understated

EBBRAT assesses qualitatively and quantitatively but also monetize risks and opportunities: this allows identifying individual hotspots,

trade-offs and synergies and different performances could be aggregated into a single index – but it is unclear how the results would be

displayed to ease decision-making

Performance evaluation of enterprises is subjective, as short-term perceived impacts are chosen over longer-term and objective

assessments – the problem is not the self-reporting process but the absence of a template (or check list) to follow, with clear criteria for

variations

Qualitative assessments address conflicts between sustainability pillars while trade-offs are mainly observed within single dimension,

namely environmental

COMMENTS ON THE EBBRAT MODEL (2)

(Ecosystem-based business risk analysis tool)

The overall approach to monetizing ecosystem service categories is sound:

Provisioning services: direct market value

Regulating services: replacement costs (and production function?)

Supporting services: avoided costs

Cultural services: benefit transfer (but employment to be further stressed)

However:

Are there templates for farm questionnaires with default indicators?

Use of “available” biophysical data may be insufficient

Indicators could be improved by including more comparable variables, such as: crop erosion potential (for soil replacement

costs); water scarcity (for consumptive use); renewable energy ratio (for energy budget)

Monetary units could be debatable (e.g. Carbon price)

VALUATION APPROACHES

Direct market value Replacement costs Hedonic pricing (WTP) & Production function & Damage cost avoided & Travel Costs (recreational areas)

Monetary valuation based on market data is defensible, but monetization remains an inaccurate proxy for societal values:

Carbon price may be lower than true economic value: market price of carbon depends on trade carbon emissions, which depend on volatile markets (from $45/t a few years ago to $5/t today); Carbon taxes and fines, defined by governments, reflect political reality (EU/ETS Euro 100/t) but not damage costs; Social Cost of Carbon has a wide range of variation ($ 8-112/t) depending on coverage and key parameters choice (i.e. discount rate, time-horizon, risk aversion and climate sensitivity)

Soil erosion rate values have a large cost spectrum (varying by a factor of 2 to 50) for both on-site damage (e.g. yield losses, drop in land value) and off-site (e.g. flooding, sedimentation, health)

Biodiversity (of species and ecosystems) is most difficult to monetize as: biodiversity is not always marketed nor has observable prices, while presenting double counting challenges with Carbon, land and water valuations

MONETIZATION CHALLENGES

MONETIZATION CHALLENGES (2)Water use cost do not reflect contribution to water scarcity ($ 2.02 to 18.8/m3): most direct use (irrigation) water costs are already reflected in

producer prices; no agreement on accounting for extraction or consumption volumes; infrastructure and provisioning costs often not included in

consumptive use. Water quality is relatively easy to value through clean-up expenditures for pesticides removal (30% in USA) and nitrates from

drinking water, as well as mitigation of eutrophication (N and P)

Other challenges of market valuation:

market prices may be distorted by policy failures (e.g. water price)

replacement costs may under-estimate the bundle of all ecosystem services

damage costs avoided can be complex, as values involve annual average damages associated with different return periods (e.g. 5, 30, 50, 100

years)

benefit transfer to ecosystem services is difficult to apply (recreation indirect use)

the quality of an asset refers to a given point in time: pristine biomes?

Most valuation techniques involve selecting a range of parameters and giving them a value through scoring and weighting, based on data and

expert judgement

NATURAL CAPITAL COALITION

Source: Natural Capital Coalition Food and Beverage Sector Guide: Materiality Matrix for the value chain of barley used to produce beer

NATURAL CAPITAL PROTOCOL The Natural Capital Coalition (~ 200 members) is currently developing a

standardized framework that outlines why, what and how businesses can identify their impacts and dependencies on natural capital

The Natural Capital Protocol has two sector guides, one of which is for food and beverages , developed by an IUCN-led consortium to which FAO participates

The Draft Food & Beverage Sector Guide was piloted and publicly commented till end of February 2016; the final text is to be launched on 13 July 2016

The Protocol (so far) consists of 10 steps including: scoping; measuring and valuing; and applying and embedding results in business’ strategies and operations

NCP helps connecting different non-financial work streams in business (e.g. energy, water, waste) in a coherent way, as well as providing guidance on qualitative, quantitative and monetary valuation of impacts and/or dependencies for particular business contexts and applications (but no rule of best practice)

Interaction with natural capital visualized through the materiality matrix of the NCP Food & Beverage Sector Guide

Source: Natural Capital Coalition Food and Beverage Sector Guide: Materiality Matrix for the value chain of barley used to produce beer

NATURAL CAPITAL PROTOCOL METRICS

OPERATIONAL NATURAL CAPITAL INTENSITY OF CROP COMMODITIES (USD OF IMPACTS PER TONNE OF PRODUCTION)

Natural Capital Impacts in Agriculture: Supporting Better Business Decision-Making (2014) evaluated the environmental cost of global agriculture to

$3 trillion/year

FAO MATERIALITY STUDY

SETTING SPATIAL BOUNDARIES

Spatial boundaries - beyond direct operational impacts - will determine the enterprise performance’ outcome

Time horizon: SAFA focuses on present performance , while seeking continuous progress. Thus, the first SAFA determines the baseline for future (annual) assessments

SUSTAINABILITY DIMENSIONS AND THEMES

A multi-purpose framework for governments, businesses and NGOs

SUSTAINABILITY PILLAR: GOVERNANCE

Enterprises collect, analyze and report to stakeholders economic, social and environmental impacts (triple bottom line reporting) and the

accounting process makes transparent both subsidies received and direct and indirect costs externalized

Enterprises do not account for impacts and performance using any FCA regime, or have significant costs on the environment and community

which are externalized from accounting systems

SUSTAINABILITY PILLAR: ENVIRONMENT

SAFA’s environmental pillar takes a semi-quantitative MCA approach and a quantitative LCA approach to benchmark

(avoided) harm or restoration of natural resources

SUSTAINABILITY PILLAR: ECONOMIC

Theme Goal: Any contamination of produce with potentially harmful substances is avoided, and nutritional quality and traceability of all

produce are clearly stated

SUSTAINABILITY PILLAR: SOCIAL

The enterprise takes measures to avoid polluting or contaminating the local community and contributes to the health of the local community

The enterprise pollutes water, air and soils with toxic materials and expands without consideration for other area residents and their needs

A UNIVERSAL FRAMEWORK

Performance

Biodiversity Goal

Ecosystems Species Genetic

Practice

Target

← Theme Goal

(e.g. ensure conservation)

← Sub-theme Objective

(e.g. diversity, functional integrity and

connectivity of ecosystems conserved)

← Performance indicators

(e.g. Land use and land cover change)

← Practice-based indicators

(e.g. ecosystem-enhancing)

← Target-based indicators

(e.g. landscape cons. plan)

SAFA METRICS HIERARCHY

Default (and customized) indicators to fulfill Sub-themes’ objectives

METRICS FOR ALL: SAFA TOOL 2.2.40

OPEN ACCESS SOFTWARE

Self-reporting or delegated assessment

A FARMING ENTERPRISE PERFORMANCE

SAFA is NOT an index but an impact assessment tool that rates, weights and aggregate indicators

A VALUE-CHAIN PERFORMANCE

SAFA Tool overlays outcomes of production, processing and marketing

BENCHMARKING SAI Platform FSA 2.0

SAI/FSA being practice-

based, it takes a more direct

and specific focus on farmers’

issues - while SAFA’s scope is

broader and more

performance-oriented

DISAGGREGATED RATING OF A THEME

Themes’ performance is

calculated by scoring,

weighting (including “no go”

values) indicators. SAFA does

not aggregate its 21 Themes -

and all sustainability themes

are given the same weight

LESSONS AND CHALLENGES AHEAD

Like most valuation techniques, SAFA scores and weights qualitative and quantitative indicators, based on (primary and secondary) data and

expert judgement

SAFA sustainability polygone displays trade-offs and opportunities along 21 Themes that cannot be further aggregated. Monetization of

impacts offers a common denominator for the aggregation of environmental, social and economic performance (thus, comparability) – IF

rigorous and agreed metrics are developed

The 1000s application’s of SAFA in different contexts world over indicate that:

Full-Cost Accounting usually performs poorly, especially at farm level

Synergies exist between the Governance pillar and all other sustainability pillars

Trade-offs between the Economic and Social pillars are substantial (e.g. Profitability vs Public Health)

Major trade-offs are often seen between the Environment and Economic pillars

The largest trade-offs occur within the Environmental Integrity pillar (e.g. GHG vs Animal Welfare), even larger than the trade-offs with other

pillars); often, performance is limited to one theme and all goals’ achievement show high variability

www.fao.org/nr/sustainability