NATURAL CAPITAL ACCOUNTING – AN INTRODUCTION
Recognizing the benefits we obtain from nature is key to ensuring long term profit while creating shared value. This article presents the results from a preliminary study on the environmental impact valuation of Nestle and discusses the benefit of this method.
“It is time to recognize that nature is the largest company on earth working for the benefit of 100 percent of humankind – and it’s doing it for free” (Sullivan, 2009, p.19). Nature’s value plays an important role in current financial performance of companies. It needs to be accounted for. Ignoring it will lead to increased risks and costs.
Natural Capital Accounting is a method to measure the externalities and dependencies of companies along their entire value chain, from raw materials to the end of life of products. More specifically it measures the interactions between our economic activities and nature, including climate change, water resource consumption, land use, water pollution, etc. It allows us to express them in monetary units, representing a value.
Natural Capital Accounting is not yet widespread and standardized, although an increasing number of companies are deploying the methodology to support decision making and strengthening their sustainability strategy. A general movement is starting to take place towards a better understanding of the nature’s value and its economic relationship. For example, the Natural Capital Coalition is joining all interested stakeholders to participate in the creation of the Natural Capital Protocol, to be published mid-2016.
In order to illustrate this method, I use hereafter a recent study that I wrote while working at Quantis in partnership with AGECO, which assessed the entire natural capital of Nestle worldwide (that we called “environmental impact valuation” in this study). The figure below (taken from the Quantis/AGECO report) shows the result categorized for each environmental issue and position along the value chain.
This analysis helps companies identify hot spots and priorities. In a context within which sustainability concerns are numerous, Natural Capital Accounting results helps to focus on the most important issues. In the case of Nestle, climate change, water and land use are the three most important impact of Nestlé. This is well in line with the sustainability priorities communicated by Nestle. We see as well that most of the impact of Nestle is created in its supply chain, which is common for food companies. The absolute results cannot be communicated for confidentiality reason.
The figure below (taken from the Quantis report) ranks Nestle’s impact per main biomes in addition to climate change, resources and human impact. We observe that freshwater is one of the biggest dependencies Nestle has on natural capital, as already identified by Peter Brabeck in an article featured within the Financial Times.
Natural Capital Accounting is a methodology that allows us to obtain a holistic view of a company’s reliance and impact on nature. The results help reach a new audience as they are expressed in common economic units, which overcome the technical barrier often found in communicating other methodologies results (such as Life Cycle Assessment). In a context where companies need to be more and more transparent and accountable, in front of an increasing range of stakeholders, those new metrics will play an important role to support engagement and decision-making.