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Is Natural Capital a Material Issue?

July 26, 2013 |

Business anIs Natural Capital a Material Issue? d government leaders from around the world are increasingly sounding the alarm about the significant impact of human activities on the natural environment – affecting its capacity to provide the goods and services we rely upon, and consequently resulting in a clear cost to business. Such is the concern of business and government that the recent Rio+20 UN conference on sustainable development saw CEOs of 39 financial institutions, including banks, investment funds, and insurance companies, make a formal commitment to work towards integrating natural capital considerations into their products and services.

Shareholders are becoming increasingly engaged with the issue. Alongside this, governments are exploring regulatory or policy changes to encourage the sustainable use of biodiversity and ecosystem services (BES) through the development of frameworks for national ecosystem services accounting.

The commitment at Rio+20 demonstrates the growing realisation that all economic activity is either directly or indirectly linked to natural capital, and action is needed. Nonetheless, this link has yet to be measured and addressed widely by the corporate sector. As all aspects of business are ultimately linked to and in uenced by trends in natural capital, this highlights a risk to business, which could ultimately lead to business failure.

The question remains: how do we effectively measure, assess and report to business on the economic impacts of natural capital on business?

ACCA has long recognised that companies ignore the need to account for non- financial issues: natural capital is no exception. The accountancy profession and the business world need to start urgently considering the extent to which they are drawing down natural capital and how the erosion of such capital will affect business. New accounting, valuation and reporting techniques are required; different approaches to risk identification, materiality processes and the internalisation of externalities are needed.

ACCA, together with its partners KPMG and Fauna & Flora International, has been exploring the relevance of natural capital to accountancy professionals and the corporate sector. This report aims to continue to show the relevance of non-financial accounting to its members and students, as well as demonstrating the tangible role the profession can play in managing corporate impacts and dependencies on natural capital. It demonstrates how some among the business community are integrating natural capital into their decisions, and that accounting for it is paramount.


Download the report here.

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