Ahead of the World Forum on Natural Capital in Edinburgh next week, ClimateCare’s Edward Hanrahan explains the concept, what it means and how it can help you strengthen the case for your sustainability programme.
The concept of financial capital is well understood. Spending more than we have leads to debt, expensive repayment terms and could ultimately spell the end for our business.
Natural Capital thinking applies this same financial process to natural assets – forests, rivers, land, minerals and water – often collectively owned, these are resources that our businesses draw on to operate and grow. Depleting this Natural Capital, without taking financial account of its value and investing to replenish what we’ve used, is leading to resource scarcity and conflict for these resources, making it difficult for communities, supply chains and businesses to sustain themselves.
Globally, we are drawing down on our natural capital provisions at a rate of 50 percent more per year than the earth can replenish and the rate of depletion is accelerating. Natural assets are co-owned so value that corporates derive from their consumption is in fact value that they are deriving from society at large, often at a discount, or even for free.
Globally accepted mechanisms for businesses to comprehensively measure or report their dependency on natural capital and ecosystem services, their consumption of shared Natural Capital assets and the value they as a corporate derive from that, are evolving fast. Organisations like the Natural Capital Coalition are emerging, and whilst studies which place a price on the resources themselves, and onto the ecosystem services they provide, have been around for years – they are now being accepted and understood more widely in mainstream business.
Greenhouse gas emissions remain the largest natural capital ‘factor’ for most companies, however just as ‘pricing carbon’ within companies has become the norm, leading organisations including Coca Cola, Kingfisher, Novartis and Skanska are already promoting the broader concepts around natural capital and growing interest from investors and regulators is leading to increasing pressure for businesses to demonstrate how they actively manage their natural capital assets, reduce business risk and control contingent liabilities.
There are businesses advantages to being an early adopter of the concept. Businesses who take Natural Capital impacts into their decision making process are able to use this as a means to manage risk and to gain competitive advantage. And, while traditional balance sheets do not take account of the value of environmental resources, Natural Capital Accounting reflects true financial cost and opportunity. This can help a business make their business case transparent and demonstrate, in financial terms, how their sustainability activity is essential to ensure a long term, profitable future for the organisation.
While the results will vary according to the nature of your business, a recent report: Natural Capital At Risk: The Top 100 Externalities of Business (commissioned by the Natural Capital Coalition) highlights that for most businesses, Green House Gas emissions make up the majority (38%) of their external environmental costs, closely followed by water use (25%) and localised air pollution. Failure to take action to reduce these costs presents real risks to the business – decreasing brand value, customer loyalty, supply chain resilience, impacting local regulation and investment potential.
With nearly two decades experience of delivering effective Natural Capital management programmes – including carbon reduction and water programmes, these risks are something that our team are well placed to help you manage and reduce. Our team specialise in developing programmes that will help your business understand and take responsibility for its Natural Capital Assets, deliver measurable progress towards the Global Goals and at the same time, mitigate risk and create value for your business.
Natural Capital Accounting is one tool at our disposal and we’d be delighted to talk about applying it to your business and for the chance to explain how a Climate+Care programme can help you cost effectively manage risk and improve the balance of your Natural Capital accounts.
ClimateCare is joining international businesses at the Natural Capital World Forum in Edinburgh next week, to share the latest thinking on this approach. If you are attending and would like to arrange a meeting, please contact us on +44(0)1865 591000.
Edward has managed ClimateCare’s development since 2007, providing financial rigour and strategic direction across all of our programmes and activities.
Edward works closely with our in-country teams to structure finance and strategic partnerships for our global sustainable development projects. He advises banks, international development finance institutions and governments to help enable sustainable development at scale.