Managing natural capital is an important challenge for organisations. Companies consuming renewable and non-renewable plants, trees, forests, animals, fish, air, water, land, soils, and minerals need to measure and report their impact on these environmental stocks. The impact can be direct or indirect. Pollution emitted by a factory affects a local community, emissions from a car manufacturer’s vehicles are generated by its customers, and single-use food packaging creates litter.
Natural capital value is created by managing and controlling the consumption, preservation and rehabilitation of these natural resources. Data collection, measurement and storytelling play an important role in helping your organisation manage its natural capital.
What about those of us in FP&A who see ourselves as trusted business partners? We need to ensure that the right measures are in place of both the processes whereby natural capital is managed, and the outcomes of those processes. We need to report on progress and incremental gains towards these outcomes.
Well governed companies recognise that their long-term sustainability depends on management and preservation of their natural capital throughout their value chain. Organisations develop sustainability policies to help manage these assets.
Some organisations may regard reducing their carbon footprint and reliance on fossil fuels as a “grudge purchase” imposed by authorities. Others (the majority?) regard this as an urgent, ongoing, vital, voluntary commitment. Active engagement with the former might indeed be career-limiting, yet each of us needs to form our own position on this vitally important topic.
Many people in Africa (and elsewhere) don’t see climate change as a threat. For them, it is already reality. The ESG guidelines advise investors to change a company’s behaviour by divesting, perhaps leaving a company with remaining shareholders who just don’t care. In 2022 investors and shareholders who want to address climate change are also focusing on active share ownership, engaging directly with their companies rather than divesting.
Some suggested direct and surrogate measures are set out below:
Measures of processes
- Annual consumption of renewable and non-renewable environmental stocks (natural materials, energy, water) by category
- Number of environmental impact studies
- Annual rehabilitation expenditure
- Energy consumption per energy source (oil, coal, natural gas, solar, wind, biomass)
- Amount and type of emissions, effluents, and waste produced, by location
- Value and type of emissions traded
- Environmental accidents, lawsuits and penalties
- Volumes of recycled and responsible disposal of hazardous and non-hazardous waste
- Environmental protection investments
- Animals purchased for trials
- Consumption of single use plastics
- Compliance with international environmental management and energy management standards
- Company, staff and supplier environmental codes of conduct
- Staff training in environmental management and compliance
- Participation in industry bodies
Measures of outcomes
- Sustainable supplies of energy and water
- The company’s environmental profile with staff, customers, shareholders
- The company’s environmental profile with regulators and environmental groups
- Reduced carbon footprint, CO2 emissions and other forms of pollution
- Value and type of natural assets under direct control
- Estimated value of scarce resources controlled
- Increases in waste recycled and reductions in waste to landfills
- Company and executives’ carbon footprint including electric car ownership.
Further discussed in Chapter 10 of The Hidden Balance Sheet. https://www.amazon.com/author/johnstretch
The author was interviewed by Mitchell Roshong of the American Institute of Management Accountants (IMA) on Stakeholder capitalism in March 2020. https://podcast.imanet.org/66