The call for companies to incorporate environmental impacts in their accounting and reporting—often referred to as sustainability accounting is growing louder. One strong indicator in the aftermath of the recent Rio Plus 20 conference is the agreement by 86 CEOs to develop natural capital accounting. 50 countries including the United States have agreed to place a value on services provided by nature.
Natural Capital Defined
In GreenBiz.com, Jennifer Morris, Executive Vice President of the Ecosystem Finance and Markets Division of Conservation International gives this definition of natural capital: “Natural capital is the limited stock of natural resources left on Earth that we vitally depend on for our prosperity, security, health and cultural traditions.” Included are forms of natural capital we consume such as food and water and also, what Morris calls “nature’s renewable ecosystem services such as pollination and water purification.”
If the news coming out or Rio Plus 20 is indicative then we can draw certain conclusions about the origins of this movement:
- The call for environmental accounting comes primarily from the environmental movement rather than from the accounting profession. The Natural Capital Declaration was convened by the UN Environmental Program along with the Global Canopy Program and the Center for Sustainability Studies. Conspicuously absent from the list are the IFRS Foundation and its standard setting arm the IASB. Neither natural capital nor anything related to sustainability accounting are subjects of research or standard setting activities by the organization.
- There are many for-profit companies supporting environmental accounting. They include a number of European companies and some US signatories such as Pax World Management and Calvert Investments known to be highly mission driven and tend to stand out for their commitment to corporate social responsibility.
What is the value of sustainability accounting? What does it tell us about the health and viability of a company? In what way does it help managers in their strategic and operational decision making? How does it help investors evaluate the bankability of a given company or project?
Although the usefulness of sustainability accounting for managing the health of a single company is questionable, issues of sustainability can have an effect on the firm’s bottom line and companies have taken notice. The 2 Degrees Network for example is a portal supported by several prominent companies to promote sustainability in the supply chain.
Furthermore, sustainability accounting can be useful to governments, and multilateral organizations as lines between policy decisions impacting economies and the environment become increasingly blurred. Such decisions can have huge impacts on infrastructure projects and large and small commercial ventures in emerging market and frontier market countries.