Accounting for natural capital: the new net zero carbon
Douglas Adams’ maverick private investigator Dirk gently solves the mysteries by examining “the fundamental interdependence of all things.” This leads him to realize that the reason a sofa gets stuck in a bend in the staircase at a physically impossible angle is that a door in the space-time continuum briefly opened by the time the sofa. has been moved.
A complex and original answer, of course. But in the eyes of many, no more complex than accounting for natural capital; calculate the monetary value of a company’s impact on the air, water and soil we all use, and on biodiversity. Wednesday [22 September], Nature Positive 2030 report was published by the five UK environmental agencies. He underlines the need to put our ambitions of recovering nature on the same footing as those of reaching net zero.
We are now focused on carbon reporting. It is now mandatory for companies listed on the main market of the London Stock Exchange, large private companies and LLPs. But natural capital accounting is the new carbon reporting. For too long we’ve believed that the unit of sustainability is the carbon molecule, but it really isn’t. We need to look at the impact of business on biodiversity and natural capital and what it costs.
Natural capital accounting is not yet compulsory for anyone, but over the next decade it will become so. We all know how important crises related to climate change and biodiversity loss are. We recognize that we are likely to see a series of extreme weather events and biodiversity crises over the next 10 to 20 years. However, many companies do not yet seem to recognize that if they do not control their impact on biodiversity and natural capital, their business will become increasingly fragile.
Determining how and where you use natural capital is not just about accounting, compliance and reducing your environmental impact; it can help you mitigate risks to your business. These risks may relate to security of supply, legislation and policies, customer action and reputation, or the ability to obtain financing.
This means that if you are a manufacturer who uses an ore mined in an area at risk of extreme weather conditions, or a food ingredient from a country that is being deforested at a detrimental rate, you need to know this. You must start now to look for other sources for your raw materials or start working with your supply chain to reduce their impacts. First and foremost, you need to understand your level of natural hazard exposure. Companies with the greatest direct impacts on biodiversity and natural capital – like energy, mining, manufacturing, and fast-moving consumer goods – should consider this a top priority.
Quantifying all the complexities of the relationships between animals, plants and their environment, or the amount of clean air or water a business uses, can seem like a daunting task. But businesses need to realize that while it is complex, it is not impossible and it will help them establish themselves as a future-ready business.
Good management of natural capital can increasingly protect your ability to obtain financing. The City is becoming aware of the E in ESG, which means more than reporting on greenhouse gases. Private equity investors increasingly want to know that an acquisition target solves its natural capital problems before they become major, and they are also starting to ask to know more about the biodiversity footprint of targets. investment.
As our economy emerges from the pandemic, the World Economic Forum calls for a shift from the status quo to a climate neutral and nature-positive future. So how can businesses succeed in this new environmental economy? It’s not just about mirroring your carbon reporting procedures with natural capital accounting; we have to go beyond the checkbox. Sustainability and understanding our effects on the natural environment must become a central organizing principle for companies. The environment is the only place we have to live and we have to live within our means.