Natural capital – coming to a set of accounts near you soon?

Until very recently, unlikely, would have been the one-word answer to my self-posed question.

That response is based on the fact that the concept of natural capital has been around since 1973 and back in 2014 PwC were asking “Natural capital accounting: the next big thing in sustainability?” Yet, no concrete steps to incorporate this into company financial statements has been seen to date.

However, there have been some interesting developments in the last two months. More of which to follow but first what is natural capital and why is it on the agenda now?

Natural capital

The World Forum definition:

“Natural capital can be defined as the world’s stocks of natural assets which include geology, soil, air, water and all living things. It is from this natural capital that humans derive a wide range of services, often called ecosystem services, which make human life possible.”

So, pretty important stuff then.

There has also been a drive to assign a monetary value to natural capital as a means of making us appreciate that taking from nature has a cost and conversely nature that is left or nourished has  economic value; even if that cost or value has not historically been reflected in a set of accounts or a country’s GDP.

Why is natural capital being talked about now?

As the Dasgupta Review makes abundantly clear in its main findings “Our economies, livelihoods and well-being all depend on our most precious asset: nature” and also:

• Our unsustainable engagement with nature is endangering the prosperity of current and future generations
• The solution starts with understanding and accepting a simple truth: our economies are embedded within nature, not external to it
• We need to change how we think, act and measure success

This review seems to have sparked a realisation that sustainability must embrace nature and biodiversity and that the economic costs of depleting nature are real and the economic value of nature is also real.

This has arguably been a key factor in, for example, the UK government making nature one of the key themes in the forthcoming G7 meeting and announcing initiatives to “to halt the decline of nature” in the hope to achieve “net zero equivalent for nature, spurring action of the scale required to address the biodiversity crisis.”

Why not natural capital

George Monbiot argued in a 2018 piece against the concept of natural capital, attacking the valuation of nature as “morally wrong, intellectually vacuous, and most of all counter-productive”, and suggested that trying to account for the value of nature would inevitably lead to its commodification, marketisation, and ultimately destruction.

This argument is summarised in a New Economics piece that contains a “critique of natural capital”; which I must say is pretty persuasive. However, its alternative, to  change the rules of how our economy operates, could be seen as too radical for a first step?

Recent developments

 In addition to the UK government focusing on nature and biodiversity in 2021, we have seen other developments in the field of business and nature, including:

• Office for National Statistics issues data that “mark the first figures covering the tourism industry in a new thread of research aiming to set out Britain’s natural capital accounts. Their assessment was that nature contributed £12bn to tourism and outdoor leisure in the latest year for which data is available.” (28 April 2021)
• UN launches intelligence tool for natural capital accounting (1 May 2021)
• World Business Council for Sustainable Development (WBCSD), in collaboration with Valuing Nature, launches the Corporate natural capital accounting – from building blocks to a path for standardization report, as a contribution to the EU Life-funded Transparent project – link (27 April 2021)
• A recent study by the Paulson Institute, a research institute founded by former U.S. Treasury Secretary Henry Paulson, estimated that global investments that degrade nature exceed conservation efforts by $600 billion to $824 billion every year – link

And, at a local level we have seen what I think may be first funding pot with natural capital in the tile – as blogged back in March.

So, it would appear to me that concept of placing a value on nature is gaining traction – and could definitely be something that businesses will have to account for in the future.

PKF Francis Clark

I strongly suspect that natural capital will get a mention at tomorrow’s Conversation over Coffee – focusing as it does on “Nature of business, and Business of Nature”; although the focus of this event is introducing the subject of the importance of businesses engaging with nature; practical (first) steps and assistance with that engagement.

I’m sure that we will be returning to natural capital as a theme for a future event.

For now, it is pleasing to see academics and businesses taking a lead in this most important of issue, our interaction with nature/ biodiversity. For more details of tomorrow’s event and to register please go to link. I will be logging on and hope to see you there.