Investing in natural assets. Business case

1. INVESTING IN NATURAL ASSETS
A business case for the environment in the
City of Cape Town
Presentation to Urban Ecology CityLab, UCT 28 July
2010

3. Why this study?
Influence budget allocations by developing focused economic
arguments for investing, maintaining and expanding the City’s natural
assets.
Rationale for this study is to develop a financially-motivated business
case for investing in natural assets in the City.
Why invest in, maintain and expand natural assets?
Natural assets produce a flow of goods and services that has value
for people living in and visiting the City of Cape Town
Degradation of urban natural assets impedes on the ability of the
municipality to deliver services in a cost-effective way
What is different from other arguments?
Arguments to preserve the natural environment have traditionally not
focused on the financial logic of investing in natural assets.

4. Overview presentation
• Natural assets and flows: definitions and
concepts
• Economic value of natural assets and flows
• A business case for the natural environment

5. 1. NATURAL ASSETS AND FLOWS
Distinguishing between:
• Natural assets/capital: • Ecosystem Goods and Services
Stock of natural resources (EGS):
owned by the City (beaches, rivers, Flows of benefits
wetlands, parks, reserves, mountain..) derived from these assets.
Money in a bank account (capital) a flow of interest.
Natural capital a flow of EGS

6. Ecosystem Goods and Services
NATURAL ASSETS
• Renewable resources: forests, plants, animals • Non-renewable resources: minerals, oil
• Environmental resources: water, coasts, atmosphere • Land
Ecosystems Goods and Services
Supporting
soil formation
photosynthesis
primary production
nutrient cycling
water cycling
Provisioning Regulating Cultural/
air quality regulation Informational
food
freshwater climate regulation reflection
fibre water regulation recreation
fuel erosion regulation inspiration
genetic resources disease regulation aesthetic enjoyment
medicine and pest regulation cultural diversity
pharmaceuticals natural hazards regulation educational value
(including fire, flood, storm
surge)

7. Ecosystems and human wellbeing
6

8. Ecosystems and poverty alleviation
Maintaining and expanding EGS flows
can contribute to poverty alleviation by:
-Helping poorer communities meet their
basic needs:
• Water
• Firewood
-Increasing:
• secure and sustainable livelihoods,
• health conditions
• income
• property value.
“Nature’s factories” to the benefit
of human beings

9. Natural Assets as Public Goods
Anyone can enjoy. At anytime.
NO PRIVATE INCENTIVE TO MAINTAIN AND
INVEST
Lack of management
Interrupted
flow of EGS
and loss of
Urban pressure value

10. 2. Economic value of EGS
What is economic value?

11. How were values prioritised?
Participatory rapid assessment with line function managers and senior
staff
City functions related to environmental goods and services in the City:
-environmental resources, parks, tourism, heritage, sports and
recreation, wastewater, stormwater, solid waste and spatial planning
Focus groups: identify and shortly motivate most important linkages
between all identified EGS in the City and:
•beneficiaries (number and value) development objectives (closest
links with natural assets)City’s environmental mandate and ability to
influence and ecological and socio-economic risks.

12. Prioritised ecosystem services
Higher High Medium Lower
Natural hazard regulation Water purification and Climate regulation – local Climate regulation global
waste treatment, (air quality)
assimilation
Recreation and Tourism Space for biota Small scale urban farming Fresh water provision
Aesthetic values and sense Water regulation Building materials
of place provision
Fish and marine resources Provision of inspirational
beauty
Natural hazard regulation (buffering function for flooding, fires, sea Educational users
level rise/ coastal surge) Cultural and artistic
practices
Provision of natural characteristics that are conducive to tourism
Religious practices
and recreation
Erosion regulation
The improvement of water quality and the assimilation of waste - Disease regulation
ecosystems help filter and decompose organic wastes Harvesting
Materials for craft and
Provision of space for globally important biota, and fashion
Use in productions,
The aesthetics and sense of place provided by the natural
environment advertising and
publications
11

13. VALUABLE FLOWS TO VARIOUS BENEFICIARIES
Natural/
semi natural
environment
beneficiaries

14. VALUABLE FLOWS TO VARIOUS BENEFICIARIES
Tourists Residential
International groups
National Rich and Poor
Local
Natural/
semi natural
environment
Industry groups
Recreation groups beneficiaries Film and advertising
Beach bathers, sailors, industry, Shipping,
picnic & braai Tourism
cyclists, hikers
Informational and
Harvest groups cultural groups
Fishers, wild plants Education,
harvesters, Scientific research,
fuelwood gatherers Religious experience

15. Valuable flows
Table 1: The value of ecosystem services to the City of Cape Town: 2008: R
million: A partial analysis
Low Medium High
Tourism 965 1 829 2 948
Recreation 408 449 494
Natural hazard
regulation
5 18 60
Film industry 133 265 398
Other (est.) 453 1 024 1 950
Total 1 963 3 586 5 850

16. Nature’s Value in Tourism and Recreation
Tourism: R965 m - R2.95 bn/a Green open spaces: R270 – R326 m/a
Nature Reserves: R 68 – R83 m/a Beaches: R70 – R85 m/a

17. Natural Hazards Regulation
Natural Hazards Reduced
Fires Consequences
Flooding Damages
Storm surge & Management costs
Sea-level rise People at risk
Ecosystems: natural barriers and buffers against natural hazards.
• Dune cordons and kelp beds reduce storm surges impact on land.
• Natural pervious ground cover absorb rainfall, impervious ground
cover increases water runoff and flood risk.
Lack of management: enhanced natural hazards risk and potential
damages.
• Invasive alien species enhance fire risk, frequency, intensity, soil’s
vulnerability to erosion → enhance potential damages, fire fighting
costs, and clean up costs.
Nature’s services in hazard regulation: R5m - R60m/a

18. Sea-Level Rise and Storm Surge:
Investing in the coast line
The increased risks of storm surges and their associated costs in Cape
Town have been assessed recently in terms of:
• Loss of real estate value
• Damage to infrastructure
• Foregone tourism revenue
Natural solutions: natural parts of the
coastline which act as buffers are not lost to
development
Increase buffering: creating kelp beds,
rockier beaches and sand dunes that will
increase the absorption capacity of the
coastline.

19. Flooding: Investing in rivers and catchments
Table 2: Impacts of the July 2008 floods in Cape Town
Informal settlements affected 70
Damaged structures 7500
People directly affected 30 000
People housed at emergency shelters in community halls 3000
People displaced in safety zones 2480
Number of meals served twice a day 22 000
Number of blankets distributed 13 000
Source: City of Cape Town, media release No 330/2008, 10 July 2008.
Storm water runs off of impervious surfaces and is not absorbed; runoff
volume typically increases:
•twofold as the percent catchments’ imperviousness increases to 10–
20%,
•threefold with an impervious surface cover of 35–40%, and
•more than fivefold with an impervious surface cover of 75–100%
compared to catchments with natural vegetation cover.

20. Fires: Investing in alien control
R30 million to R40 million in damages attributable to the March
2009 fires in Somerset West (R25 to R30 million in damages for
Lourensford wine estate and R5 million to R10 million for
Vergelegen wine estate
In January 2000, two wildfires burnt 8 000 ha on the Cape
Peninsula resulting in insurance claims of approximately $5.7
million or R73 million
Invasive Alien Plants lead to higher
damage costs, higher firefighting
costs and avoidable clean-up costs.

21. Water Purification and Waste Assimilation: Investing in
rivers and wetlands
Within assimilative capacities
Wetlands • processing some of the grey and
Water waste water outfalls
purification • creation of recreational and
economic opportunities
function • contribution to a healthy
environment for communities.
Services provided by wetlands save cities significant amounts of infrastructural costs which
would weigh on them if the natural ecosystem wasn’t present or became inefficient.
Zandvlei
• Replacement cost of a treatment plant: R180 million
estimated.
• Replacement cost of a flood storage capacity: R24 million
estimated
• Costs of constructing an artificial wetland.
Illustrates the magnitude of the “free” services provided.

22. Space for Biota: Investing in biodiversity
Biodiversity needs to be recognised and valued as a critical
‘umbrella’ service without which most other valuable ecosystems
services would be diminished or may even become unavailable.
Cape Floral
Kingdom
9000 plant species
70% endemic
2002 - 2006: International funding = R225 million
2008 - 2009: Environmental Education Programs =
23 781 learners from 500 schools.

23. Aesthetics and Sense of Place: Investing in
wellbeing, City brand and property
• Enhanced health and wellbeing (e.g. preference for natural to
built environments, restore mental fatigue, attention deficit
disorder, lower stress, neighbourhood satisfaction)
• Contribution to the Cape Town brand and an enhanced
business environment (desirable living attract key human
capital and business, inspiration, creative thinking), as evident
by many quality of life awards
• Property value enhancement

24. Film making: Investing in scenery and aesthetics
Table 3: Number of productions and expenditure in the Cape Town and
Western Cape film industry (2005/2006)
Average expenditure Total
Number of
per production (Rm expenditure
productions
2006) (Rm 2006)
Long form (features) 30 37.2 1 115.6
Local Commercials 142 0.9 162.5
Service Commercials 400 1.8 631.8
International Commercials 58 2.6 77.9
Stills 2 100 0.3 659.8
Provincial Total 2 730 2 647.6
Cape Town Total 2 027.0
Source: Standish & Boting (2007)
Film and advertising total values associated with natural
assets of between R133 million and R398 million

25. 3. MAKING A BUSINESS CASE
Insights into the level of environmental expenditures in relation to
the benefits received from the natural environment.
Net present value of combined natural assets:
Indicator
1 → R43 billion to R82 billion.
Ratio of environmental expenditure to the value generated EGS
→ R1 spent by municipality on natural assets ≈ R8.30 (range
Indicator
2 R4.50 - R13.50) of ecosystem goods and services (EGS) generated
compared to
→ R1 spent by municipality overall ≈ R 7.30 added value
generated in local economy
Leverage of municipal
expenditure on economic
value of EGS > Leverage of municipal
expenditure on the broader
Between 1.2 and 2 times City economy.

26. Understanding budget allocations
An attention-driven decision-making model
Number Number
% change/year % change/year
Large numbers of small changes
Smaller numbers of large changes (large increases and large
decreases)
Preference for environmental policies in Cape Town exist, but have
not yet translated into rapid bursts of budget changes in the City.

27. Environmental signals in the Municipality
Based on terms used in media releases, speeches and documents by the City of Cape Town.

28. Environmental signals in the Municipality
Based on terms used in media releases, speeches and documents by the City of Cape Town.
Environmental signals for natural assets
Water, River, Mountain
Open spaces, wetlands,
Garden, Beach
fynbos
Weaker Stronger
Environmental signals
Environmental signals related to EGS
Tourism, fire, waste,
Air quality, alien, drought,
stormwater, recreation,
sense of place.
conservation.
Weaker Stronger
Environmental signals

29. Environmental signals of citizens
Table 4: Environmental signals based on search volume on the internet in the
Western Cape
Search term Google score Search term Google score
Cape Town 15.2 Money 1
Music 5.55 Coast 0.86
Hotel 4.6 Fire 0.74
Weather 3.9 Nature 0.64
Jobs 3.9 Parks 0.3
Water 2.24 Shark 0.24
Rugby 2.1 Table Mountain 0.18
Stellenbosch 1.88 Nature reserve 0.14
Beach 1.44 Kirstenbosch 0.14
Tourism 1.42 Conservation 0.1
Fish 1.2 Waste 0.08
River 1.18 Alien 0.04
Mountain 1 Stormwater, Recreation, 0
Water quality, Biodiversity
Note: Search volume relative to the word ‘money’. Analysis done on 27 June 2009.
Natural assets and ecosystem services related to the terms ‘water’, ‘beach’, ‘river’,
‘mountain’ and ‘tourism’ provide the strongest combined environmental signals.

30. CONCLUSION
Investing into underlying natural assets can leverage relatively high
economic value in the broader City economy (1.2 - 2 times higher than
overall municipal expenditure).
Investing and maintaining the City’s natural assets or ‘ecological
infrastructure’ yields highly valuable services which provide the backbone
for value addition and employment in City’s economy.
It is conservatively estimated that the City’s natural assets yield a flow of
services valued at R4 billion per annum, within a range of between R2 billion
and R6 billion per annum.
As an entity focused on service provision and as an enabler of economic
growth and development, the municipality has the mandate and opportunity to
invest adequately in natural assets to maintain a healthy flow of services to the
benefit of people living in and visiting Cape Town.

31. Nature provides a free lunch, but
only if we control our appetites.
William Ruckelshaus, Business Week, 18 June 1990