- Natural capital and social capital accounting can help businesses manage risks more effectively
- Finance teams are increasingly recognising the commercial value of broadening the information upon which decisions are made to include natural and social capital considerations
- Companies are making use of an increasingly diverse range of metrics to ensure effective assessment of business performance and inform strategy, management and operational decisions
- There are a number of overarching ‘principles’ which draw on financial accounting principles that finance teams can use to test and define the information used to account for natural and social capital
- Whilst there is good progress in relation to environmental issues, dealing with social issues is far less developed
- Evaluation of natural and social capital impacts and dependencies is typically undertaken through use of quantitative metrics such as physical units e.g. tonnes of carbon, or through estimated monetary values (often referred to as the ‘valuation’ of natural or social capital)
Why the project was chosen
To date, traditional accounting methodologies have focused on financial metrics. Natural and social stocks have not often been reflected in commercial decisions. Whilst financial metrics will continue to be an important indicator of business performance, we now also need better visibility of our natural and social resources and to understand the impacts they may have on future business viability.
Issues such as the global decline in resource availability and changing population demographics, mean organisations need to improve their understanding of their impacts and dependencies on the environment and society.
The natural and social capital accounting project was initiated to identify principles which can be applied by financial teams when considering how and when to embed natural and social capital issues into decision making.
Download the report here.