To me, there is something intriguing about completeness. Imagine, if we could value what a tree is worth. Not just the wood mind you, but the tree’s shade, water retention, contribution to local ecosystems, or attraction of tourists.
That, in a nutshell, is the idea of natural capital accounting: Take natural resources and factor in all the interdependencies and opportunity costs. Sounds like an accountant’s dream, right?
On November 21 and 22, business leaders gathered in Edinburgh for the First World Forum on Natural Capital to discuss ways of implementing this idea in mainstream business.
Joining the discussion: metrics and language
Going into this conference, I decided to get as much out of it with as little preparation as possible. That meant getting just a general feeling of the ‘who, what, why and when’ of natural capital. Admittedly, the ‘what’ already threw me off: natural capital? Never heard of it. And finding comprehensive definitions was not so easy either (I really like this one, for a more serious one look at this). So how could I join a discussion on natural capital accounting?
When I arrived at the Edinburgh International Conference Centre and started talking to people, I quickly realised that I could relax for two reasons: First, there didn’t seem to be consensus on a comprehensive definition of natural capital between everyone there (and not everyone’s main interest was natural capital in the first place). Second, even fewer people knew how to account for it. I didn’t know it at that time, but these two points pretty much became the guiding topics of the conference: metrics and language.
Metrics is technical in nature and revolves around issues of the measurement of natural capital. As an Accounting and Control student at Rotterdam School of Management (RSM), I was surprised that it wasn’t the finance sector that mostly discussed metrics and measurement tools, but the supply chain managers. The issue on the financiers’ minds was: when will there be convergence and standardisation of measurement metrics? If you follow the development of traditional accounting standards and their international convergence, you’ll know that it could only be another 50 years or so. Without precise measurement and eventual monetisation of natural capital, there will always be reluctance among the finance-speakers in organisations to address the ‘value’ of natural capital. But this type of resistance can only go so far. As Professor Dieter Helm, Chair of the DEFRA Natural Capital Committee maintains: It’s better to be 50% right than 100% wrong. And not valuing natural capital because there is no price tag on it is certainly 100% on the wrong side.
The second major issue pointed out at the World Forum is that of language. In a great plenary speech, Jo Confino, Executive Editor of The Guardian, claimed that there is a driving need for a better narrative around natural capital, language that opens the discussion to people outside boardrooms and high level economic think-tanks. If decision making is to factor in biodiversity, and in the impact of business on natural and social capital beyond the supply chain’s first tier - if natural capital is to enter into discussions in everyday business - there is a need for de-jargonization and clearer, better definitions.
If you don’t understand the previous sentence, then you are in agreement. Monika Weber Fahr, Director of Knowledge Learning Results of the Sustainable Development Network at the World Bank and an economist by training, acknowledged this need. She highlighted the lack of contextualisation of natural capital data, and a need for partnerships across business functions, and between the private sector, NGOs, civil society, and governments.
It might just be due to a lack of government representatives at the Conference, but it appears that business leaders of small, medium, and large enterprises are going to take the reins in natural capital accounting, since they will be using it for decision making.
Nevertheless, there is also need for standard-setters to get involved in the issue and define metrics and valuation methodologies. The World Business Council for Sustainable Development (WBCSD) in cooperation with Dow Chemicals’ wetland project, and the Kering Group with its Environmental Profit and Loss (EP&L) efforts around the PUMA brand, have shown that there is a business case for the inclusion of natural capital in decision making, if the language and the data is right. It is valuable knowing that metal clips on a pair of leather shoes, although merely 2% of the overall weight, account for 20% of its environmental impact. The knowledge is valuable in itself, but particularly relevant for risk management and marketing.
Natural Capital Accounting: Crucial for Future Careers
Having returned from Edinburgh, I can say that attending the World Forum on Natural Capital certainly gave me a sense of how seriously big business takes natural capital accounting, and how crucial an understanding of natural capital accounting is going to become for my career in whatever decision making role I will find myself.
I’m no idealist, but listening to top ranking economists and portfolio managers talk about how there will be a change in the firm landscape of the 21st century, I can’t deny that natural capital has evolved to an important strategic issue, even with my most pragmatic thinking cap on. Organisations know that Natural Capital Accounting can give them an edge over competitors and, if they miss this train, there will be no second one. And that means that resources will follow. Resources that my generation will manage and reinvest. How on earth are we going to do that, with a toolbox filled with neoclassical economics?
Is there a single take-away from a company perspective from this conference? If so, it’s that, if natural capital is to be mainstreamed in organisations, leadership is required. Leadership that knows how to connect the dots and bridge functional divides in firms. Tomorrow’s leaders will need a firm grasp on the topic of natural capital, and those people will be in high demand in many organisations. So if there, in turn, is one take-away I have from this conference from a student perspective, it is this: Get involved!
And don’t think that you can only do that with a study in developmental economics or stakeholder management. The finance department still seems to be lacking in understanding of the changes ahead. If that’s the case, why not gather a little expertise as an economist, finance manager, or accountant immediately (if you want a really quick on how to actually do Natural Capital Accounting, have a look at this)? With a bit of luck and a lot of cooperation and innovation, Peter Bakker – RSM alumnus, President of the World Business Council for Sustainable Development, and a dynamic speaker at the World Forum on Natural Capital - might be right when he says “Accountants will save the world.” Practitioners agree that it’s not important anymore that your job-title sound ‘green’. Mark Gough, Head of Sustainability at The Crown Estate is certain that, within ten years, he will be out of a job; or at least out of a job title. “There won’t be a separate sustainability office anymore. Sustainability experts are going to move into strategy, marketing, or supply chain management. I’ll probably become officer of strategy”.
A New Generation Emerging
The question that remains is: When is my generation going to take over this debate? David Jones, founder of One Young World, was pretty clear on that: It’s already happening. In emerging markets, it’s the new generation of business, accounting, and economics students that grasp the opportunity this paradigm shift provides. This time, it’s the developed world that is a little behind. I believe there are attractive opportunities out there for young aspiring professionals to take part in this discussion, be it on the side of metrics or language, to help shape a dialogue that we will lead in few years’ time. If even Sir Philip Hampton, the chairman of RBS (as apologetic for Big Oil as he may have been) agrees that natural capital is what value creation needs to be centred on, then this is hard to ignore.
They say that the first step to getting somewhere is deciding you're no longer willing to stay where you are. At the World Forum on Natural Capital it became clear that companies are not comfortable with where they are anymore. Now let’s get somewhere in the Natural Capital discussion.
David Unterdorfer is a Sustainable RSM Student Assistant and currently studying an MScBA in Accounting and Control at RSM. He was a delegate at the World Forum through the scholarship scheme organised in conjunction with the Rotterdam School of Management, Erasmus University
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Videos from the World Forum can be seen here.
Images from the World Forum can be seen here.
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