New framework enables businesses to account for Natural Capital

Will Evison, assistant director, environmental economics highlights the launch of a new framework and guidance on corporate natural capital accounting and its importance to the business world.

Based on research by PwC, the concept of ‘natural capital’ is slowly catching on amongst the largest companies in the UK. For example, four of the FTSE 100 use the term in their most recent annual reports, compared with only two a year ago. However, this is still only a fraction of the companies in the FTSE 100 that have major reliance on natural capital including mining and forestry companies and food and apparel producers.

Over a quarter of the FTSE 100 do talk about biodiversity or ecosystems in their annual reports (both concepts are closely related to natural capital). But rarely is this with a view to potential value creation or value at risk. In sustainability reporting, the numbers are higher, seven refer to natural capital specifically and nearly half to biodiversity or ecosystems. But here again, recognition of natural capital as a vital business asset is rare.

So why does this matter? Ignoring Natural Capital carries risks, for example, if a free service provided by the environment like fresh water or pollination of crops, suddenly becomes unavailable, can it be replaced and at what cost?

Companies may also be missing out on opportunities. The private sector manages areas of land that deliver significant benefits to society as a whole. Smart landowners are looking at how they can measure that value, with a view to communicating it or even capturing some to generate new sources of revenue. This in turn can help to strengthen the incentives for conservation or for more sustainable forms of production.

The launch today of a new framework and guidance on corporate natural capital accounting is therefore timely. 

The framework was developed for England’s Natural Capital Committee by PwC, eftec and RSPB and has already been piloted with four organisations: Lafarge-Tarmac, United Utilities, the National Trust and The Crown Estate.

In summary, corporate awareness around the value of Natural Capital is growing, but not as fast as the risks. All too often natural capital is still invisible in company decision making. This new framework provides an opportunity for companies to change that.