Natural Capital Accounting

Nature is an essential economic factor. It provides a variety of renewable and non-renewable resources and the economy depends on the provided ecosystem services. Neither benefits nor costs are adequately reflected in corporate accounting like the balance sheet or the consolidated profit and loss account. The economic valuation of natural capital is the key instrument to change this. Compared to a purely quantitative assessment it has the advantage to express the value of or damages of natural capital in the "same language” as financial capital.

How it works in practice and which corporate examples exist can be found in the study "How companies value natural capital”, which you can download here.

Conferences: Business, biodiversity & natural capital - Ambitions, risks & opportunities

Under the common motto “Business, biodiversity & natural capital | Ambitions, risks & opportunities”, the Global Nature Fund and the European Comission brought together front-running companies/oganisations and newcomers with leading scientists, government officials and nature conservation organisations in a unique location in the centre of Europe. Click here for more information.

Background

Pilot projects such as the "The Economics of Ecosystems and Biodiversity” (TEEB) studies, initiated by the European Commission, aimed to highlight the value of ecosystem services and biodiversity for the society and provided new arguments against destruction and overuse.

Lately, the private sector has increased its efforts to measure and evaluate environmental costs, and – in the longer term – to incorporate them into the accounting. Especially the WBCSD’s "Guide to Corporate Ecosystem Valuation (CEV)” that was road tested by 14 companies and PUMA’s environmental profit and loss account stand out as good examples.

The Business Case

Numerous reasons exist why companies should deal with the topic "natural capital" in general and more specifically the economic valuation, e.g.:

  • Unified metric: Monetization allows to compare different environmental impacts such as "hectares of land use” or "tons of nitrogen emissions” as they are translated into one unit. Therefore, integration in corporate decision-making tools such as cost-benefit-analysis is possible.
  • Identification of hotspots in the supply chain and risk management: The economic valuation as part of PUMA’s environmental profit and loss account was used to identify environmental hotspots, in this case the production of leather, in the supply chain. Potential disruptions, due to environmental damages or resource-scarcities can therefore be avoided and sustainability initiatives can be targeted more efficiently to where they have the biggest impact.
  • Reputation and consumers: In times of increasing awareness for sustainability and environmental issues, environmental damages are a reputational risk. Economic valuation permits to compare the sustainability performance of two products or companies. With this increased transparency sustainability can become a competitive advantage.
  • Value for society: Many companies, especially industries with a major direct impact on nature, such as extractives, use the economic valuation to highlight the benefit they are creating for society due to rehabilitation of the sites. The valuation is thus a tool to strengthen the "social license to operate”.

Why is Natural Capital important?

Interested? Further information can be found at www.naturalcapitalmarkets.org. The GNF can also support you in testing and applying natural capital accounting. For more information please get in touch with us.