The estimated USD 125 trillion annual contribution that natural capital provides to the global economy can only be managed with proper measurement. Despite being ranked consistently by the CEOs as one of the top 5 global risks, measuring the state of this natural capital remains a challenge. As a result, managers do not effectively integrate natural capital risks with their existing financial and non-financial analysis, risk assessments, operational procedures, product development systems and related business applications.
Now is the time to take stock of these efforts and begin working towards a clear, precise and pragmatic concept of ‘natural capital accounting,’ or ‘corporate natural capital accounting (CNCA)’ when applied to business or public organisations.
This paper notes some current best practices and highlights gaps that need to be addressed so that we can establish robust standards for each of these standardisations. The paper follows the journey of the Natural Capital Protocol from its release in 2016 and recognises that the Protocol may be the most influential effort to support the integration of the value of natural capital into corporate decision making. This is due to the Protocol’s direct recognizition of the value of stocks and calls for their measurement and management. In addition, it explores casual pathways among stocks, flows and value.
- The natural capital community of practice aims to use corporate natural capital assessment and accounting methods to value natural capital assets, but in practice often falls short of adequately recognising and measuring the changes in the state of the underpinning biophysical assets.
- Methods for measuring the changes in the state of natural capital assets exist but have never been adequately surveyed and described.
- This working paper proposes a definition for corporate natural capital accounting (CNCA) that builds from the state of natural capital assets in biophysical terms: “Corporate natural capital accounting is the systematic process of identifying, measuring, recording, summarising and reporting the periodic and accumulated net changes to (a) the biophysical state of natural capital assets and (b) the associated values as per complementary value framing perspectives.”
- This definition applies to any organisation along value chains, from suppliers to clients.
- This working paper also defines a process by which CNCA is implemented using “7 CNCA standardisations” in a sequential manner.
This paper notes some current best practices and highlights gaps that need to be addressed such that we can establish robust standards for each of these standardisations.
To date much of the work on natural capital assessment and accounting has emphasized monetary values rather than changes to state of natural capital assets themselves. Consequently, the distinct features and benefits of effectively measuring changes in natural capital assets are neither adequately surveyed nor widely known. This working paper aims to support the natural capital community of practice by capturing these features and benefits so they can best complement the ongoing natural capital efforts.
Version 2.1 (February 2023) has incorporated input received on the first two versions.
Major updates include:
- An update on the iterative nature of building corporate natural capital accounts
- The next steps included to build upon what the report has developed
- Updated language to align with the Natural Capital Protocol, SEESA and other standards
- New foreword