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Natural Capital Protocol launched for businesses to account for nature

The TEEB for Business Coalition and International Finance Corporation have launched a landmark project to develop a harmonised framework for valuing natural capital.

Global organisations led by the TEEB for Business Coalition and the International Finance Corporation, a member of the World Bank Group, launched a milestone project on Monday to develop and test a new framework for valuing natural capital in business and investor decision making.

Speaking at the Responsible Business Forum on Sustainable Development held in Singapore, IFC director of sustainable business, Usha Rao Monari, called on businesses and governments in Asia to participate in the project.

“Current economic and business models don’t account for natural capital… projects currently don’t show externalities that relate to the environment so natural capital remains unpriced and are not valued enough,” she said.

What is the price of clean water and clean air? She asked. To that end, the Natural Capital Protocol will seek to first raise awareness, then create methodologies to price natural capital, she said.

The concept of capital maintenance is central to business activity and the discipline of accountancy. It answers the question: do we create or destroy value? Our world is now reaching environmental limits and so we must build nature into our business thinking, as another form of capital. 

Robert Hodgkinson, Director of the Institute of Chartered Accountants of England and Wales (ICAEW) and Chairman of the TEEB for Business Coalition 

The concept of valuing natural capital - also known as ecosystem services - is relatively new but is important as it enables companies to better measure, manage, report and disclose the impact of their business operations, and in doing so, mitigate the risks that they face, Dorothy Maxwell, Executive Director of TEEB for Business Coalition told media at a roundtable earlier in the day.

“For businesses to be viable in the long term the ecosystems and resources they depend on must be maintained, yet when it comes to the natural environment the world is seeing a rapid depletion of capital,” she said.

“Economic invisibility has been a major reason for the neglect of natural capital. The current business model creates significant environmental externalities that are not priced such as damages from climate change, pollution, land conversion and depletion of natural resources,” she explained.

As a result, there is a growing case for understanding the dependencies business has on natural capital, the risks and opportunities associated with this relationship and their real value.

The Natural Capital Protocol will build on existing approaches to develop an international standard to value nautral capital and the focus will be particularly on business sectors and supply chains with high natural capital impacts including agricultural commodities, forestry, fisheries, energy, mining, construction and consumer goods. 

This tool will then be available for businesses in their strategy planning, management at organisation and supply chain levels, procurement, financial accounts, corporate reporting/disclosure and assessing new markets. For financial institutions, these include Investor Environmental, Social and Governance (ESG) assessment.

Seed funding for the project is provided by IFC. TEEB for Business Coalition is the IFC partner to deliver the project.

Two sector guides for agricultural commodities used in food and beverage and consumer goods will also be developed. Monari noted that in Asia, agribusiness is a huge sector that faces issues of water and land use, and community livelihoods. Palm oil companies in Southeast Asia will be an industry that the coalition is targeting for the project. The industry has been in the spotlight due to large-scale burning of forests and peatland in Indonesia earlier in June, which caused the most severe haze crisis in the region.

Businesses have two choices, said Monari. “Wait for these risks to hit them. Or take a long-term view, and develop a framework and approach to deal with it.”

Jessica Fries, executive director of the Prince of Wale’s Accounting for Sustainability Project, one of the project partners, noted that valuing natural capital is also an important element of integrated reporting, which is gaining traction in countries globally. 

This “will reflect the value of a company, not just from the historical perspective, but also the future value they might create,” she said.

Appealing to businesses at the forum, Monari issued leaders a challenge: to take the long-term view instead of short-term profits when it came to the resources they consume and the resulting social and environment impacts. 

“I speak as a mother, and a member of the human community, I don’t want to see this planet run down, it is an intergenerational issue that we have to worry about,” she said.

The two-day forum held at the Sands Expo Convention Centre features the largest gathering of sustainability leaders, convening 500 business and government leaders for a series of high level discussions basd on the theme “Transformation, Growth and the Green Economy”.

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