Natural capital – the stock of capital derived from natural resources such as biological diversity, ecosystems and the services they provide – is in decline globally. The loss of natural capital exposes companies to a range of new risks and opportunities that can impact profit, asset value and cash flow. Civil society is increasingly concerned about the loss of natural capital, but are companies identifying and measuring these issues? When do they become material?
ACCA (The Association of Chartered Certified Accountants), KPMG and Fauna & Flora International have investigated the concept and existing use of materiality in light of the increasing significance of natural capital as a business risk. The new report entitled: Is natural capital a material issue? An evaluation of the relevance of ecosystem services to accounting professionals and the private sector was recently launched at a briefing event held in London.
The key findings of this report are:
- Perceptions of Natural Capital as a risk are variable within the accountancy profession
- Current disclosures on Natural Capital, as currently practiced, are too limited to provide insights into risk management
- A handful of companies in high environmental impact sectors are reporting substantial detail on aspects of Natural Capital, but the majority are reporting little or no information due to the perceived immateriality of the issue, and
- There are a number of barriers to corporate action such as the lack of a standardised business case, low or unclear market values for some aspects of Natural Capital and some accounting principles
The report aimed at Chief Financial Officers (CFOs), accountancy professionals and business leaders – as key gatekeepers to corporate strategy, accounting, reporting and disclosure – investigates the concept of materiality and how it is used to identify issues for management and disclosure. The recommendations made in this report are targeted to this key audience.
The report also explores the current response of the accountancy profession to the increasing importance of natural capital as a business issue. It involved a survey of over 200 accountancy professionals, interviews with CFOs and senior management from eight major companies, a disclosure survey of corporate reporting by 40 organisations in specific sectors, and desk based research into relevant literature and work in the field.
Key findings of the survey included:
- 60 percent of respondents agreed that the natural world was important to their business
- More than half of the respondents had included natural capital issues in their company’s business risk evaluations at some point
- Nearly half (49 percent) of respondents identified natural capital as a material issue for their business and linked it to operational, regulatory, reputational and financial risks
Mr Sharad Somani, Head of Climate Change and Sustainability Services, KPMG in Singapore said: “The focus on Natural Capital is timely and fits in with the wider sustainability debate in Singapore. With global resources in decline, identifying and interpreting the various risks associated with sustainability has become increasingly important to stakeholders. Yet, companies are not necessarily responding to these concerns effectively.
With this report, we hope to bring attention to what the accountancy profession can do to help mitigate these risks and develop a sustainable corporate strategy in today’s complex business environment.”
Head of Sustainability at ACCA, Rachel Jackson said: “ACCA strongly believes that considerations should be made by accountancy bodies to make their members aware of the need to account for natural capital within the company annual reports and accounts, as well as sustainability reports in order to avoid failures when anticipating future risk and their associated costs to business.”
For more information, please contact:
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Notes to Editors
1. Natural Capital is the stock of capital derived from natural resources such as biological diversity and ecosystems along with geological resources such as fossil fuels and mineral deposits. It provides the ecosystem products and services that underpin our economy and inputs or indirect benefits to business. This report focuses on biodiversity and ecosystems, specific constituents of natural capital that give rise to ecosystem services. Geological resources are not considered as they are routinely included in market transactions and accounting practices.
2. About ACCA (www.accaglobal.com): ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants, supporting 154,000 members and 432,000 students throughout their careers, and providing services through a network of over 80 offices and centres. ACCA works to strengthen a global profession that is based on the application of consistent standards, which ACCA believes provide the best support for international business and the desire of talented people to have successful, international careers. ACCA champions the needs of small and medium-sized business (SMEs) and emerging economies, and promotes the value of sustainable business.
3. About Fauna & Flora International (www.fauna-flora.org): Fauna & Flora International (FFI) protects threatened species and ecosystems worldwide, choosing solutions that are sustainable, on the basis of sound science and taking account of human needs. Operating in more than 40 countries worldwide- mainly in the developing world- FFI saves species from extinction and habitats from destruction, while improving the livelihoods of local people. Founded in 1903, FFI is the world’s longest-established international conservation body and a registered charity. Through its global corporate partnerships, within the Business & Biodiversity Programme, FFI aspires to create an environment where business has a long-term positive impact on biodiversity conservation. FFI leads the Natural Value Initiative (NVI) collaboration (www.fauna-flora.org/initiatives/nvi). To date, the NVI has released a series of valuable publications and tools that address biodiversity and ecosystem services within the finance, extractive, pharmaceutical, and agricultural sectors.
4. About KPMG in Singapore: KPMG in Singapore is part of a global network of professional services firms providing Audit, Tax and Advisory services. Our website is located at kpmg.com.sg The independent member firms of the KPMG network operate in 152 countries and have more than 145,000 professionals worldwide. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
5. How to obtain copies of the report:
For a full copy of the report, click here