A new international framework for managing natural assets will help businesses monitor their use of environmental resources, and work out the risks and opportunities this holds for their operations, its creators said on Wednesday.
The Natural Capital Protocol - launched in London by more than 160 businesses and accounting, conservation, research and policy groups - provides guidance for companies to measure their dependence and impact on water, timber, floodplains and other natural assets.
“Nature is free, in effect, and so it has been over-exploited and is being depleted, and that is now having… economic and social and human costs,” said Karen Ellis, chief economics adviser at the UK arm of WWF, a partner of the Natural Capital Coalition, which developed the protocol.
“To address that problem, we need to start to take this into account much more systematically in decision-making,” she told the Thomson Reuters Foundation.
Natural capital is a term for the planet’s stock of resources - such as plants, animals, air, water, soils and minerals - that bring a flow of benefits to people.
Those benefits include clean air, food, water, energy, shelter, medicine and raw materials used to make products.
The protocol draws on existing guides, methods and techniques to identify, measure and value the natural capital on which a business relies.
Nature is free, in effect, and so it has been over-exploited and is being depleted, and that is now having economic and social and human costs.
Karen Ellis, chief economics adviser, WWF-UK
That could help a company reduce the risk of interruptions to its supply chain from extreme weather or floods, use resources more efficiently, anticipate future legislation, cut financing costs and boost profit margins, the coalition said.
It could also enable companies to understand how action that changes the environment, such as clearing forests or improving water quality, could affect local communities.
Overall, the protocol aims to transform how businesses evaluate their operations and take decisions, so they can reduce pollution, protect biodiversity, and limit the impacts of climate change, the coalition said.
It could also open up new revenue streams, such as waste management or payments for protecting ecosystems, Ellis said.
To date, financial accounting practices have largely overlooked the impacts and risks to business related to natural assets.
That puts corporate profits under threat from natural disasters and changes in policy, including regulation or taxes on use of those assets.
A 2013 report commissioned by the coalition noted that water shortages, for example, would have a catastrophic effect on 40 per cent of Fortune 100 companies.
But the protocol - which has been piloted by more than 50 top businesses including Dow Chemical Company, Shell, Coca-Cola Company and Nestle - aims to help companies avoid such losses.
The coalition’s website cites a denim processor that escaped financial harm from California’s recent drought by adopting a waterless ozone machine, reducing its water use and bills by half, and saving $1,300 per month.
Michael Izza, CEO of the Institute of Chartered Accountants in England and Wales, said his profession had a major role to play in preserving the capital stock of nature. “Without nature there is nothing,” he said.
“Without clear information on their impacts and dependencies on nature, it’s very difficult for businesses to take real action. The Natural Capital Protocol will provide this information, and accelerate the shift towards a more sustainable future,” he added in a statement.
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