Nature's intrinsic value is priceless and conservationists are always alarmed when it is described as an economic asset, but the concept of natural capital is a perspective on its anthropocentric value alone. Natural capital accounting helps businesses internalise changes in the value of nature's stocks and services that they are responsible for or depend upon.

5 min read | Last updated 22 March 2021

Business disclosure on environmental issues is accelerating. From 2019 to 2020, Europe’s 50 largest businesses grew their reporting on GHG emissions from 54% to 74%, on deforestation/degradation from zero to 22% and on biodiversity from zero to 46% (CDSB, 2021 (pdf)).

Throughout the 20th century, it was assumed that ecological resources were infinite. GDP, which does not take ecological value into account, was the international economic metric. Business models and practices reflected financial boundaries, not wider contexts, and business planning had a short term focus, while ecological systems may take years to replenish or renew. The result is that financial accounting developed within a paradigm that did not ‘see’ nature, so business frameworks, systems, models and practices were not developed to account for nature and its relationships to business strategy and performance (NZIER, 2017 (pdf)). The first time a corporate begins to account for natural capital may be when it adopts IIRC integrated reporting principles or GRI standards for sustainability reporting.

The table below shows how natural capital is incorporated into four well-known non financial or environmental reporting frameworks / standards.

FrameworkNatural Capital Coverage
An Integrated Report (IR) is an annual report that follows the principles of the International Integrated Reporting Framework to explain how the enterprise creates value over time. The IR framework denotes six capitals – financial, manufactured, intellectual, social and relationship, human and natural – that provide the inputs and receive the outcomes of business processes, the difference over time being the creation, preservation or erosion of value.IR defines natural capital as ‘all renewable and non‑renewable environmental resources and processes that provide goods or services that support the past, current or future prosperity of an organization’ including air, water, land, minerals and forests, biodiversity and ecosystem health‘.
GRI standards are the world’s most commonly used sustainability reporting standards (10,000 users in 100 countries), helping businesses communicate their impacts on environmental, social and economic issues that are material to their business.
GRI standards for natural capital comprise:
GRI 301: Materials
GRI 302: Energy
GRI 303: Water and Effluents
GRI 304: Biodiversity
GRI 305: Emissions
GRI 306: Effluents and Waste
GRI 307: Environmental Compliance
GRI 308: Supplier Environmental Assessment
CDP runs the global disclosure system and rating mechanism for businesses managing environmental impacts within their own operations and in their supply chain. CDP’s questionnaires guide businesses toward best practice disclosure.CDP’s database spans climate, water and forests disclosures.
CDSP is a framework for reporting environmental information with the same rigour as financial information, providing investors with decision-useful information from within the annual report.Environmental information within the framework includes:
– natural capital dependencies
– environmental results
– environmental risks and opportunities
– environmental policies, strategies and targets
– performance against environmental targets

Natural capital accounting (NCA) is defined as identifying, quantifying and / or valuing natural capital impacts, dependencies and assets, to inform business decision-making and reporting. Impacts are business effects on natural capital (eg habitat damage / creation) and environmental impacts on other capitals (eg pollution’s effect on society). Dependencies are the ecosystem services that the business relies upon (eg pollination, flood protection, water). Assets are natural capital elements of business holdings that a business may draw down; some are non-renewable (eg oil, gas, coal, precious metals, minerals) and some are renewable (eg timber, sequestered carbon, cropland, pasture land, fisheries). NCA can be applied at discrete levels, eg project, site, product, company or supply chain.

Industries most likely to benefit from NCA are those that are highly nature dependent or nature impactful, such as forestry, agriculture, fisheries, food and beverage processing, power and construction.

The advantages of NCA may include:

  • financial stability when resources are scarce
  • improved security and quality of raw material supply
  • find opportunities to create shared value
  • enhanced sustainability performance and reputation
  • improved relations with and communications to stakeholders
  • improved data for governance
  • informed strategy
  • identifying opportunities for cost saving, efficiency, innovation, differentiation
  • managing compliance with regulations
  • avoiding the risk of stranded assets

The image below depicts natural capital assets (ecosystems) that might be found on a farm.

Source: La Trobe University

The skill sets for NCA and financial accounting are similar, but NCA still requires an investment from a business in terms of skills development, systems and consulting advice. NCA is a mix of natural sciences, life sciences and economics. The framework below explains how they link.

Data is recorded in quantitative and qualitative non financial metrics and then converted to economic values. Valuation requires identification of what is gained and lost, the scale of gain or loss and the timing of effects (NZIER, 2017 (pdf)).

Some natural capital has a marketable value, eg fishing quota, water use rights, mining consents; however, much of natural capital does not have a market value. Value can be estimated based on several techniques. Market and non market values are then combined into a total economic value (TEV) – see diagram below.

Non-market valuation approaches include:

  • market-based measures
  • cost-based measures
  • production-based measures
  • preferences-based measures (ie public willingness to pay)
    • travel cost analysis
    • contingent value
    • choice modelling

Not everything that is material to decision making can be given a monetary valuation. Quite aside from nature’s intrinsic value, which cannot be valued from any human perspective, there are intangible anthropocentric values that must be considered. Māori-specific non-monetary values are challenging, if not impossible, to account for on economic terms commensurate with the Western viewpoint.

From a Māori world view, all living creatures have mauri (life force) which coheres all parts of the environment, including people, into a collaborative state. Mauri can be imbued in physical objects, including manmade objects. Mauri can ebb and flow and so must be maintained through kaitiakitanga (obligations on people to preserve mauri). Mauri and wairua (people’s souls) are connected through whakapapa (lineage) from Papatūānuku (Earth mother) and Ranginui (God of the sky). Thus, ko au te awa, ko te awa au – I am the river, and the river is me (Boffa Miskell, 2017 (pdf)).

Examples of this are New Zealand’s enactments of personhood for Te Urewera (a former national park) and Te Awa o Whanganui (a river) in law with the Te Urewera Act 2014 and Te Awa Tupua (Whanganui River Claims Settlement) Act 2017.

Traditional knowledge, mātauranga Māori, is essential in assessing mauri, including knowledge of changes in seasons, tides, weather patterns and local planting and fishing calendars. No mauri assessment can be developed or used without the support and guidance of mana whenua, in particular their kaumtua (elders), kuia (women elders) and kaitiaki (custodians) (ibid.)

Models that may be helpful include: