Natural capital accounting framework developed for business

27th January 2015


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  • Business & Industry ,
  • Ecosystems ,
  • Biodiversity ,
  • Natural resources

Author

Emma Douglas

Companies can better understand the importance of natural assets to its operations by using a new tool developed by the government's advisers on natural capital.

As part of its third official report to government, the Natural Capital Committee (NCC) has designed and tested a corporate accounting framework to evaluate the costs of sustaining and restoring natural assets.

The costs can then be allocated to the private and public sector organisations according their use of the asset.

The NCC says the tool can help businesses answer the following questions:

  • Which natural capital assets are the most important to our operations?

  • How much of the value of the organisation relies on natural capital?

  • How this might change in the future?

  • How much should the business spend to maintain the natural capital on which it relies?

The NCC worked with the RSPB and consultants at eftec and PwC to develop the tool. It has been piloted by Lafarge-Tarmac, United Utilities, the National Trust and the Crown Estate.

The NCC’s report calls for the government to identify how it plans to fund its ambition to leave the natural environment in a better state than it was inherited, and suggests dividing responsibilities between the private and public sectors.

“Government controls many of the levers, be they taxes, subsidies, legislation or other, and will therefore be instrumental in ensuring the right incentives are in place. However, the private sector and civil society also have a significant part to play, because they own or are ultimately responsible for the majority of natural assets,” the report states.

The NCC’s tool creates a transparent way to share costs between corporations, landowners, local authorities, central government, non-governmental organisations and others, it argues.

It can also determine whether the parties have carried out their responsibilities, the committee says.

The committee suggests a range of different funding options and levers to improve natural capital. These include capital maintenance payments from public, not-for-profit and private sector asset owners; compensation payments from developers; greater use of economic instruments such as taxes and charges; and reforming and eliminating subsidies that encourage damage to the natural environment.

Peter Young, chair of the Aldersgate group, said: “Conventional accounting systems help measure and safeguard the capital base upon which a business relies. It is only logical that these principles be applied to measure and safeguard the natural environment.

“To support this work, government must create an appropriate new institution to oversee and report on progress,” he said.

The NCC also called for the government to urgently step up action to ensure that the Office for National Statistics and the environment department (Defra) meet the target to incorporate natural capital into the national accounts by 2020.

They should create a national balance sheet outlining the value of the nation’s natural assets, along with estimates of depreciation. The government should revise its guidance on economic appraisal in the Green Book and apply the revised guidance to new projects as a matter of urgency, the committee says.

The NCC is an independent advisory body created following a government commitment in its 2011 natural environment white paper, in which it pledged to “improve the quality of the natural environment across England”.


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