It provides over $50 trillion worth of value to the global economy (to give you a benchmark, global GDP is $63 trillion) and is the foundation on which our economies, societies and prosperity are built.
Despite this, natural resources are being depleted at an alarming rate with a growing risk of severe consequences. We’re consuming 50% more natural capital than the earth can replenish and by 2030 we’ll need the natural capital equivalent of two planets to sustain ourselves. The decline in this capital base, if left unchecked, will wreak havoc on business and society.
Natural capital issues are generally absent from the business agenda, ignored my most investors, and are, at best, a secondary consideration in major capital allocation and investment decisions.
A radical shift in mindset is needed if businesses are to adapt to the risks and opportunities that natural capital depletion presents. We need new corporate thinking that: accounts for the critical dependencies and impacts companies have on nature and ecosystems; makes the connection between financial capital and natural capital; and integrates the real value of nature into decisions, strategies and business models.
SMEs need to support the adoption of natural capital accounting in their organisations and ensure that natural capital issues are reflected in data collection, decision making, risk management and reporting.
Change on this scale and of this substance requires more than a superficial response: it will only work if natural capital is integrated into business models, strategic planning and decisions and processes.
There 5 key ways in which SMEs can help galvanise their organisation to make this change:
1. Raise natural capital as a strategic issue and make the business case for it
Engage with natural capital as a strategic, competitive and financial issue at board level and facilitate debate about how it relates to your strategy, business model, performance outlook and social licence to operate. You can do this by framing the risks and opportunities that underpin natural capital impacts and dependencies in robust business terms.
2. Measure and value your natural capital impacts and dependencies
Select a method for measuring or valuing your natural capital impacts and dependencies – this can include qualitative or quantitative metrics, or involve putting a monetary value on your impacts. Then define the scope, for example, your organisational footprint, supply chain or across the whole value chain, and engage relevant parties such as suppliers to identify risk ‘hot spots’.
3. Include natural capital insights in decision making
Prioritise those areas of the business where natural capital accounting will drive management action, such as strategic planning, risk and supply chain management, project and investment appraisal, governance and incentives, innovation and operational management. Then adapt business processes and systems to incorporate natural capital considerations and information so that these can be embedded into decision making and reporting.
4. Influence the debate
Establish links with international and professional organisations that are supporting the development of natural capital accounting, such as the Natural Capital Coalition’s project to develop a protocol for valuing natural capital, to ensure your views are represented.
5. Develop relevant skills
Build capacity in your team account for natural capital with the same rigour and discipline you would apply in accounting for financial performance and forge relationships with stakeholders, relevant experts and specialists in this rapidly evolving area.
Accounting for natural capital issues isn’t easy. But just because it’s hard doesn’t mean it shouldn’t be done. At the Chartered Institute of Management of Accountants (CIMA) we are calling on businesses to take action and incorporate natural capital considerations into business decisions and reporting, before the regulatory axe falls.
It is important to factor in issues that have a material impact on cost, risk and long term value, such as natural capital depletion.
Sandra Rapacioli is head of sustainability research & policy at CIMA
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