Industry calls for improved natural capital reporting

Source: The Accountant

Leaders from the profession and business have called for improvements to the reporting of natural capital.

The calls come on the back of a report, Natural Capital at Risk - The Top 100 Externalities of Business, issued by The Economics of Ecosystems and Biodiversity (TEEB) for Business, which claims the top 100 environmental externalities are costing the world economy $4.7tn annually.

The Institute of Chartered Accountants in England and Wales (ICAEW) chairman Michael Izza said the study highlights that the disciplines of accountancy and economics "need to evolve to recognise that the limiting factors to production and growth are no longer just labour, capital and technology".

"As our economies, populations and our consumption have grown exponentially relative to nature, which once seemed so abundant and limitless, we now have to face the fact that this is not so," he remarked.

Sustainable business advisory firm, International Financial Corporation, director Usha Rao-Monari said the TEEB report "makes the business case for companies and investors to take natural capital into account if they wish to save on resource use, access markets and financing, and mitigate major environmental and social risks".

While Jochen Zeitz, director of multinational holding company Kering, chairman of the board's sustainable development committee and co-chair of The B Team, echoed Rao-Monari's views, saying "now more than ever it is critical for reporting requirements to include natural capital accounting and government legislation to address corporate transparency and accountability."

Not measured, not managed

TEEB's report ranks the top 100 impacts in each sector, broken down by region to provide a platform for companies and investors to assess exposure to unpriced natural capital, both directly and through supply chains and holdings. It also highlights sector-level variation in regional exposure to impacts to identify opportunities to enhance competitive advantage. Impacts across all six eKPIs were combined by region and sector to create a ranking of the top region-sectors globally.

"Understanding natural capital risk and opportunities is essential for businesses to position themselves in an increasingly resource constrained world," TEEB for Business Coalition director Dorothy Maxwell said.

World Business Council for Sustainable Development president Peter Bakker commented: "Now that we have this high-level assessment of where the priority areas are, we need to encourage companies to increasingly consider the value of nature in decision-making, and ultimately accounting and reporting. The results of such company assessments should also be shared so we can fit the pieces of the puzzle together to develop a standardised approach to account for nature."

TEEB for Business Coalition advisory board chair Pavan Sukhdev said the world "undoubtedly" needs to change how it does business, "but we cannot manage what we do not measure - and at present only a handful of businesses measure their externalities".

"Resolving this is at the heart of the green economy and sustainability itself," Sukhdev added.