Puma was the first, with its high profile environmental profit and loss report, which I blogged about two years ago. Now with the impacts of the coming resource crunch becoming more evident and alarming, big businesses, like Disney, Coca-Cola, Dow, Xerox, and others, according to Bloomberg, are getting into the game. So what exactly are they doing? It’s called natural capital accounting.
Basically, every company relies on ecosystem services to one degree or another – either as direct ingredients or inputs for their products, or for water or land for facilities, or indirectly, for air quality that makes the cities they chose to locate in a nice place for employees to live. In the past, none of these environmental benefits were being directly accounted for by companies. Nor were their negative impacts on the environment, such as pollution. Now that resources may become increasingly scarce, companies are waking up to both their dependency and impact on ecosystem services, and are beginning to account for them.
Companies’ attention to natural capital accounting is driven by self-interest and risk management, as they are beginning to realize how vulnerable they could be to resource scarcity and environmental degradation. The financial sector as a key economic intermediary is particularly concerned. Some leading financial services companies recently released the Natural Capital Declaration; stating that they will work to integrate the value of natural capital into financial products. Corporate self-interest is now leading companies to play a more proactive role in preserving the environment.
Natural capital accounting is naturally gaining the attention of the accounting and standard setting professions. Basically, currently accounting standards fail to account for natural capital, so the question is how to correct it. Since natural capital is also missing from gross domestic product (GDP) calculations, there is a parallel and related effort to incorporate natural capital into GDP as well. Leadership on this issue is being taken, by the UK government, which has established a Natural Capital Committee, charged with providing the government with independent advice on how to manage and preserve the country’s natural capital.
For those in environmental circles, the fact that natural capital should be accounted so that it can inform decision-making for companies, governments and individuals for is nothing new. The difference is that now people seem to be paying attention and doing something about it.