Why Natural Capital Accouting is important for Business

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.

Natural capital in the hospitality industry

To be able to carry out natural capital assesmens companies need data and methods, which they often have only limited access to. Since April 2018, the GNF has been implementing a natural capital project for companies, funded by the Federal Environment Agency, to facilitate access to this data. The GNF creates various data sets that companies can access. Guides and workshops are used to teach companies how to use the data and methods. The project is primarily aimed at companies from the hospitality industry, but other companiesare also invited to contact GNF with suggestions, questions and ideas on the topic.

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.

 

Country:   Germany
EBBC Partner:   Global Nature Fund
Supported by:
  German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU)
German Federal Environmental Agency (UBA)