Nature is far from unlimited. The wild is finite. It needs protecting.
In simple terms, accounting for nature is the process used to measure the impact an organisation has on biodiversity and understand the dependencies for the entity of the natural ecosystem they sit within. This must be considered in the wider context of the planet experiencing dramatic nature loss. Natural capital has traditionally been viewed as a free and unlimited resource, often not reflected in the cost of production, or its impact to the wider stakeholder community rarely accounted for. In many capital allocations and organisational investment decisions investors have ignored nature, and the wider biodiversity issues absent from boardroom decision-making.
Accounting for nature can facilitate the inclusion of environmental resources that are the earth’s natural capital to reflect the true costs of products and services. Directly understanding the material impact of nature on an organisation and the impact of an organisation on nature, not only builds future business resilience, but can also help reverse dramatic nature loss.
The accounting for nature lexicon
In our Environmental Protection Introduction: Putting the E in ESG we summarized some of the aspects of accounting for nature. Included in the summary were concerns about rainforest deforestation and also keystone species such as bees, beavers and hummingbirds, which are critical to the survival of other species in an ecosystem, and especially important to agriculture. We also introduced the concept of ‘movement ecology’, which is the migration of species in response to environmental change.
Upfront, it is important to have a common understanding and definitions of what we mean when using the terms, such as, ‘nature’, ‘biodiversity’ and ‘ecosystem’. The language and terms used are important so that organisations can scope what accounting for nature means for their operations and their wider stakeholder community.
Nature and natural capital
The Oxford English dictionary defines the word ‘nature’ as, ‘all the plants, animals and things that exist in the universe that are not made by people.24 A more common term, in the accounting profession, when thinking about nature, is ‘natural capital’. The IFRS Foundation’s Integrated Reporting <IR> framework 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. It includes:
This is broadly in line with the Capitals Coalition definition of ‘natural capital’ and the combined natural resources of ‘plants, animals air, water, soils and minerals.26
With these definitions, at a basic level, accounting for nature, focuses on an organisation’s impact in the four realms of, land, water, freshwater and atmosphere.27 But also the reverse; the impact of nature, or the lack of natural resources, on an organisation.
Ecosystems
The Natural Capital Protocol defines an ecosystem as, ‘A dynamic complex of plants, animals, and microorganisms, and their non-living environment, interacting as a functional unit. Examples include deserts, coral reefs, wetlands, and rainforests.’28 The Canadian Professor of forest ecology, Suzanne Simard, expands on their importance,
Ecosystems are so similar to human societies — they're built on relationships. The stronger those are, the more resilient the system. And since our world's systems are composed of individual organisms, they have the capacity to change. We creatures adapt, our genes evolve, and we can learn from experience. A system is ever-changing because its parts - the trees and fungi and people are constantly responding to one another and to the environment. Our success in coevolution — our success as a productive society — is only as good as the strength of these bonds with other individuals and species. Out of the resulting adaptation and evolution emerge behaviors that help us survive, grow and thrive.29
Biodiversity
A simplified definition of biodiversity, from The Economics of Biodiversity: The Dasgupta Review is, ‘The variety of life in all its forms, and at all levels, including genes, species and ecosystems.' 30 This builds on the United Nations’ Convention on Biological Diversity (CBD) definition of:
The variability among living organisms from all sources, including inter alia, terrestrial, marine and other aquatic ecosystems, and the ecological complexes of which they are part; this includes diversity within species, between species and of ecosystems.31
Biodiversity is critical because it represents the foundation of ecosystems that, through the services they provide, affect human well-being. These services that ecosystems provide include:
provisioning services such as food, water, timber and fiber;
regulating services such as the regulation of climate, floods, disease, wastes and water quality;
cultural services such as recreation, aesthetic enjoyment, and spiritual fulfilment; and
supporting services such as soil formation, photosynthesis and nutrient cycling.
Ecosystems that provide these services include unmanaged ecosystems, such as wildlands and nature preserves, or other ‘protected’ areas; they also include managed systems, ranging from farms, croplands, rangelands to aquaculture sites, as well as urban parks and ecosystems.
Assessing the many dimensions of biodiversity is very complex, and includes attempts to characterize the attributes of ecosystems, their status and their performance, along with measures of ‘ecological capital’, which indicate the amount of resources available for providing services, such as total species and richness, and soil nutrients. These all need to be considered when accounting for nature.
A needed shift in perspective, the three fs: flora fauna and funga:
Often, when thinking about nature, our understanding is biased, by our own senses and simplistic models of the world. Typically for the finance professionals, everything is reduced into a series of abstract, mechanistic components, ending in a financial cost classification. This has been confounded by the Darwinian theory of competition, and the survival of the fittest, that permeates business thinking.
In the world of farming and agriculture, Lake District hill farmer, James Rebanks, noticed,
Our leading agricultural colleges still churn out ‘business-focused’ young farmers, fired up with productive zeal. Students are taught to be at the cutting edge of the new farming, applying science and technology to control nature. They are taught to think about the land like economists. They are taught nothing about tradition, community or ecological limits.32
Shifting perspective in the scientific community includes work in life sciences that is changing our understanding of funga, and it is a prime example of symbiosis. ‘Funga’ is a relatively new collective term for the fungi kingdom, in the same vein as flora is for plants, and fauna is for animals. In 2021, the International Union for the Conservation of Nature (IUCN) called for the recognition of fungi as one of three kingdoms of life critical to protecting and restoring the earth.33 The study of fungi and its symbiotic relationships with plants through mycorrhiza networks challenges our understanding of Darwinian evolution and natural selection.
Understanding nature and becoming nature positive, must promote a symbiotic view of life; one that is the product of cooperation, interaction and mutual dependence.34
There is also a need to move away from thinking that places ’ourselves’ at the centre of everything. Time to consider the richness of the natural world on its own terms and rhythms. This can be hard when many organisations are plugged into data streams, simplified models, and technology running 24 hours a day, that offers instant answers. The data deluge has made it harder for individuals to make decisions. Rather than being more informed, our access to ever-increasing amounts of information is making us less capable of weighing up possible strategic choices, and is disconnecting us from wider natural ecosystems.
Movement ecology is a case in point of slowing down, and observing what is changing in an ecosystem. The study of the movement of wild species, ‘movement ecology’, is providing scientists with early indications, through animal and plant migration, of where climate change impacts are happening.35 Migration patterns are being viewed as a response to environmental change and how an ecosystem functions. This kind of data is also useful to organisations in understanding the next great migration, and how they will need to adapt their business models.
What does nature positive mean?
For organisations, the ultimate aim of accounting for nature must be a journey to become a ‘nature-positive’ entity. This is where an organisation’s activities and impacts upon nature — species and ecosystems — focus on restoration and regeneration rather than facilitating its decline. Where the consideration of complex issues around nature are built into an organisation’s decision-making and business model DNA. Being Nature positive is a DNSH philosophy — ‘Do No Significant Harm.’
The Taskforce on Nature-related Financial Disclosure (TNFD) define the term, ‘nature positive’ as, ‘A high-level goal and concept describing a future state of nature (e.g., biodiversity, ecosystem services and natural capital) which is greater than the current state.’36 Guidance from the Science Based Targets Network adds time scales to what it means to be nature positive, ‘a nature-positive world requires no net loss of nature from 2020, a net positive state of nature by 2030, and full recovery of nature by 2050’.37
For individuals and organisations looking to pursue being nature positive, a first step is to explore the Convention on Biological Diversity’s (CBD) The Kunming-Montreal Global Biodiversity Framework38 Its vision, goals and targets can help provide the focus for an organisation’s the journey to becoming nature positive.
UN Biodiversity Conference (COP15) — December 2022
Delayed from meeting in 2020, due to the COVID-19 pandemic, the 15th conference of the parties (COP) under the Convention on Biological Diversity (CBD) met in December 2022. 195 countries and the European Union came together in Montreal, Canada, to agree a new set of global goals to protect and restore nature by 2050. Billed as the biggest biodiversity conference in a decade, the Kunming-Montreal Global Biodiversity Framework (GBF), is being heralded as the nature equivalent to the 20215 Paris agreement on Climate.
The Kunming-Montreal Global Biodiversity Framework has a vision for 2050 and four supporting goals. Its vision,
By 2050, biodiversity is valued, conserved, restored and wisely used, maintaining ecosystem services, sustaining a healthy planet and delivering benefits essential for all people.39
The vision for 2050 is supported by four long-term goals. These are,
Nature conservation The integrity, connectivity and resilience of all ecosystems are maintained, enhanced, or restored, substantially increasing the area of natural ecosystems by 2050; Human-induced extinction of known threatened species is halted, and, by 2050, the extinction rate and risk of all species are reduced tenfold and the abundance of native wild species is increased to healthy and resilient levels; The genetic diversity within populations of wild and domesticated species, is maintained, safeguarding their adaptive potential.40
Ecosystem services preservationBiodiversity is sustainably used and managed and nature’s contributions to people, including ecosystem functions and services, are valued, maintained and enhanced, with those currently in decline being restored, supporting the achievement of sustainable development for the benefit of present and future generations by 2050.41
Access and benefit sharingThe monetary and non-monetary benefits from the use of genetic resources, and digital sequence information on genetic resources, and of traditional knowledge associated with genetic resources, as applicable, are shared fairly and equitably, including, as appropriate, with indigenous peoples and local communities, and substantially increased by 2050, while ensuring traditional knowledge associated with genetic resources is appropriately protected, thereby contributing to the conservation and sustainable use of biodiversity, in accordance with internationally agreed access and benefit-sharing instruments.42
Financing and means of implementationAdequate means of implementation — including financial resources, capacity-building, technical and scientific cooperation, and access to and transfer of technology — to fully implement the Kunming-Montreal global biodiversity framework are secured and equitably accessible to all Parties. This is especially true in developing countries, in particular the least developed countries and small island developing states. That includes countries with economies in transition, progressively closing the biodiversity finance gap of 700 billion dollars per year, and aligning financial flows with the Kunming-Montreal Global Biodiversity Framework and the 2050 Vision for Biodiversity.43
The GBF then introduces 23 action-oriented targets. These have been designed for and urgent response over the next decade, with a 2030 mission:
To take urgent action to halt and reverse biodiversity loss to put nature on a path to recovery for the benefit of people and the planet by conserving and sustainably using biodiversity, and ensuring the fair and equitable sharing of benefits from the use of genetic resources, while providing the necessary means of implementation.44
The GBF then introduces 23 action-oriented targets. These have been designed for and urgent response over the next decade, with a 2030 mission.
The 23 action-oriented targets are divided into three categories
Reducing threats to biodiversity (8 targets)
Meeting people’s needs through sustainable use and benefit-sharing (5 targets)
Tools and solutions for implementation and mainstreaming (10 targets).
Reducing threats to biodiversity targets relate primarily to land and sea use and conservation efforts, along with restoration of degraded freshwater, marine and terrestrial ecosystems.
Targets under the category of meeting people’s needs encompass sustainable management and equitable use of agriculture, aquaculture and forestry resources, along with access to, and benefits of ‘green and blue spaces’, especially in urban and other densely populated areas.
Tools and resources for implementation and mainstreaming relate to socio-political and economic activities, along with the values, incentives and behaviours necessary to ensure either positive or neutral biodiversity.
To build their accounting for nature literacy, the finance professional and their organisations should start by understanding the following draft targets and the implications to business.
Target 14 — Ensure the integration of biodiversity into policies, regulations, and development processes.
This target involves the assessment of impacts ‘at all levels of government and across all sectors of the economy’ to ensure alignment with biodiversity values.
Target 15 — Take legal, administrative or policy measures to encourage and enable business, and in particular to ensure that large and transnational companies and financial institutions: (a) Regularly monitor, assess, and transparently disclose their risks, and (b) Provide information needed to consumers to promote sustainable consumption patterns. (c) Report on compliance with access and benefit-sharing regulations and measures.
Mandatory nature disclosure is due to be implemented within the European Union in 2023 with the introduction of the with the Corporate Sustainability Reporting Directive (CSRD).
Target 16 — Ensure that people are encouraged and enabled to make sustainable consumption choices.46
For people and consumers to be enabled to make sustainable consumption choices, this will require organisations to disclose more of their products’ impacts on nature. A greater understanding of products’ materiality on nature and stakeholders will help here. For more details see ‘materiality and externalities in accounting for nature’ section.
The Sustainable Development Goals and nature (SDGs)
In September 2015, the United Nations established its 17 Sustainable Development Goals. The goals recognise,
that ending poverty must go hand-in-hand with strategies that build economic growth and address a range of social needs, including education, health, equality and job opportunities, while tackling climate change and working to preserve our ocean and forests.48
At a simple level there are two goals that relate specifically to nature. These are,
14 Life below water — Conserve and sustainably use the oceans, seas and marine resources for sustainable development.
15 Life on land — Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss.
However, to only consider SDG 14 and 15 encourages lazy thinking, and not what the goals were defined to promote. Nature is a topic that cuts across, and is interconnected, with many of the other goals. This interconnectedness must be reflected when accounting for nature. For example, goals, 6 clean water and sanitation, 11 sustainable cities and communities, 12 Responsible consumption and production, and 13 climate action, all directly impact and contribute to increasing nature and biodiversity loss if not kept in check. Then if nature and biodiversity loss is not reversed there will be an increasing negative impact on the goals; 1 no poverty, 2 zero hunger, and, 3 good health and well-being.
1 No poverty — End poverty in all its forms everywhere.
2 Zero hunger — End hunger, achieve food security and improved nutrition and promote sustainable agriculture.
3 Good health and well-being — Ensure healthy lives and promote well-being for all, at all ages.
6 Clean water and sanitation — Ensure availability and sustainable management of water and sanitation for all.
11 Sustainable cities and communities — Make cities and human settlements inclusive, safe, resilient and sustainable.
12 Responsible consumption and production — Ensure sustainable consumption and production patterns.
13 Climate Action — Take action to combat climate change and its impacts
Here the creation of an organisational purpose map is helpful to understand the impact of nature. It also highlights the relevance of each of the goals and the relationship between an organisation and its wider ecosystem. Start by categorising the goals by those,
That are part of the core organisation activity.
That are important to the organisation.
Over which the organisation has influence.
Fundamentally, without nature and biodiversity stability any organisational efforts to achieve goal 8, decent working and economic growth would be impossible. Download o
