Environmental profit and loss informs business decision-making

27th October 2016


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Author

Clair Elizabeth McCowlen

Businesses and academics have produced an accounting framework that puts environmental profit and loss (EP&L) into business decision-making processes.

The business-focused EP&L is set out in a new report, Biodiversity and ecosystem services in corporate natural capital accounting. International clothing company Kering, whose brands include Gucci and Puma, worked with academics to develop the framework.

Kering first developed the EP&L methodology as part of its own approach to corporate natural capital accounting and to help it understand the environmental impacts of its business and supply chain. The premise for the company’s EP&L initiative was to ‘make the invisible impacts of business visible, quantifiable and comparable’. The company also wanted to apply academic rigor to test EP&L’s effectiveness and boundaries.

According to the report, businesses are increasingly aware of their dependencies on nature’s assets, such as water and crops. However, it notes that most tend to neglect other critical aspects of natural capital, including ecosystems and biodiversity, which represent the variety of all life on Earth and provides a wealth of benefits, such as regulating water flows, increasing soil fertility and providing pollination.

Working with experts from conservation, academia and industry, Kering identified ways of improving the EP&L model and methodology. They did this by incorporating more dynamic, real-time and accurate analysis of ecosystem services and by adopting a biodiversity metric to capture less tangible benefits that go beyond a simple utility value.

‘Only by consistently measuring and managing business impacts on natural capital through the lens of biodiversity, soil and water, can companies demonstrate they can grow sustainably,’ said Dr Gemma Cranston, acting director of the natural resource security portfolio at the Cambridge Institute for Sustainability Leadership and co-author of the report.

The biodiversity indictor augments current valuation methods, and ensures stakeholders and suppliers recognise that biodiversity builds resilience in the ecosystem and contributes to new business models that integrate considerations about animals, plants and habitats.

‘This unique collaboration between business and academics has catalysed new thinking around biodiversity measurement; it provides a critical launching pad for future work with business leaders,’ Cranston said.

The EP&L business report is backed up by an academic working paper, which provides further details on the metrics and methodology of corporate natural capital accounting.

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