One, two, free: how natural capital accounting can help drive environmental sustainability through corporations

One, two, free: how natural capital accounting can help drive environmental sustainability through corporations

Corporations are beginning to take the natural capital that their businesses rely on seriously. From 2013-2014 there was a 34 per cent increase in the number of corporations mentioning ecosystem service provision or natural capital in their annual reports[1]. There is also a growing awareness of the economic value of natural processes and the ways that they underpin business productivity. This awareness can be harnessed as a powerful tool to promote more environmentally sustainable business practices through two main mechanisms.

  1. Using ecosystem services to deliver operational improvements
    Businesses are starting to take into account the use value of the natural processes they rely on, and acknowledging that in many cases, ecosystems can provide services essential to business at a cost lower than synthetic alternatives. Investing in the preservation of these services can therefore be an economically-wise investment, yielding better Net Present Value returns than synthetic alternatives.

    For example, Coca-Cola’s soft drink products rely on the provision of consistent and reliable water sources in the watersheds where their bottling plants are located, yet the company observed that its operations were having sustained negative impact on the provision of these Ecosystem Services (ES). Groundwater levels fell by over 22 metres around the bottling plant in Kala Dera in the 10 years following the activation of the plant in 1999[2].

    In the interest of mitigating the threat of losing these essential services, Coca-Cola developed a strategic partnership with the World Wildlife Fund (WWF) in 2007 with the aim of conserving freshwater resources around their bottling sites. As a result of the collaboration, the company has helped fund the restoration and management of hydrological services in 11 major watersheds, as well as aiming to improve their water efficiency in production by 25 per cent from a 2010 baseline[3].

    Analysing the future use value of the ES affecting their business has helped Coca-Cola build the business case for internal investment in ES, providing more environmentally-sustainable products whilst helping mitigate risks to the company’s future growth. This ecological investment may never have occurred had the company not viewed the ES essential to the business through an economic lens.

  2. Incorporating environmental impacts into natural capital accounts
    The second mechanism, and possibly that with the greatest potential to drive environmental improvements, is encouraging corporations to account for all of their impacts on ecosystem service provision and natural capital in a set of natural capital accounts.

    These natural capital accounts can then be published simultaneously with the corporate accounts and publicly scrutinised as an in-tandem business performance metric. Whilst natural capital accounting is currently only an emerging trend, it has the potential to evolve into an economy-wide proxy for an organisation’s environmental impact and to influence consumer demand for firms’ products/services.

    Some large corporations have emerged as leaders in natural capital accounting. Scandinavian healthcare giant Novo Nordisk have begun to integrate environmental accounting in with their standard corporate accounting, making ecosystem service provision a key component of their financial performance. In 2012 Puma became the first company to publish their complete environmental accounts[4]. The monetary value of their adverse impact on ES provision was cost at $145 million.

    This revolutionary mechanism for accounting for organisations’ impacts on ES provision may arise as a key influence on western consumer demand in the coming decades[5], providing a strong economic argument to invest in more environmentally responsible business practices.

Barriers to implementation

A large barrier to the effectiveness of natural capital accounting in becoming a key driver of western consumer demand is the lack of current uptake from large corporations.

Only when a critical mass of organisations have analysed their environmental impacts and published their environmental accounts will they be comparable and enable consumers to make more informed decisions regarding the impacts of the goods/services they purchase. However with the current high rate of increase in awareness about the value of ecosystem services, the time when environmental accounts become the best proxy for an organisation’s true impact may be less far off than we think.


References

[1] Waage, S. and Kester, C. (2014) “Private sector engagement with ecosystem services.” BSR working paper

[2] (2010) “Groundwater levels continue downward spiral around Coca-Cola plant”, India Resource Centre

[3] (2013) “The Coca-Cola Company and WWF: renewing our partnership, expanding our impact”, worldwildlife.org

[4] (2010) “Puma Environmental Profit and Loss Account”, puma.com

[5] McGill, A. and Evison, W. (2014) “The next big thing in sustainability?” pwc.com

Would you like to comment?

This site uses Akismet to reduce spam. Learn how your comment data is processed.

We are using cookies on our website

Are you happy to accept our analytics cookies, which help us learn about our website visitors and their use of this site? Learn how to disable all cookies.