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Rethinking the Value Chain: Accounting for Natural Capital in the Value Chain

March 01, 2014 |

Screen Shot 2016-09-01 at 10.51.35The one element on which the entire value chain depends and impacts is natural capital. Natural capital – forests, rivers, minerals, oceans, air, land – provides essential services to business, economies and society. Natural capital underpins all other forms of capital, including financial. Despite this, natural resources are being depleted at an alarming rate, presenting new risks such as price volatility, as well as potential commercial opportunities

The success of many businesses will increasingly depend on how well they understand, and manage, their natural capital dependencies and impacts. This understanding must extend well beyond their own operations to their entire value chain – from suppliers to consumer use. For some organisations their direct operations account for a relatively low percentage of their environmental impact. Their biggest impacts are caused by consumers using their goods and services, or by their suppliers (for example raw materials producers and processers). As the scarcity and volatility continue to increase prices of natural resources, organisations will see a decline in profit margins, reduced growth and reputational issues.

With growing attention from both governments and non-governmental organisations in the preservation and valuation of nature, it may not be long before companies are forced to pay for their environmental impacts. Investors too are becoming concerned about how corporations manage nature. 34% of organisations surveyed by EY in 2013 had been asked by investors and shareholders about their sustainable sourcing of raw materials.

In response to these mounting pressures, forward thinking organisations have begun to look at their relationship with nature – both dependencies and impacts. They are starting to account for nature in corporate decisions and link natural capital management to commercial success. Puma, for example, is working closely with its supply chain to reduce environmental impacts, and Unilever and Levi Strauss are focusing on consumer-use impacts.

This report explores the risks and opportunities from natural capital depletion and how businesses are accounting for nature to improve decisions in their value chain. It also explores the role of accountants in supporting the adoption of natural capital accounting, and provides five practical recommendations for CGMAs

CGMAs have an important role in navigating their organisations through the challenges of natural capital depletion. They have the skills and oversight to make the connections between natural capital, commercial opportunity and risk, and ultimately commercial performance

Download the report here.

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