Douglas Adams’ maverick private eye Dirk Gently solves mysteries by looking at ‘the fundamental interconnectedness of all things’. This leads him to realise that the reason why a sofa become wedged in a bend in the stairs at a physically impossible angle is because a door in the space-time continuum briefly opened at the time the sofa was moved.
A complex and out of the box answer, to be sure. But in the eyes of many, not more complex than natural capital accounting; working out the monetary value of a company’s impact on the air, water and soil that we all use, and on biodiversity. On Wednesday [22 September], the Nature Positive 2030 report was published by the UK’s five environmental agencies. It stresses the need to put our ambitions for nature recovery on the same footing as those for reaching net zero.
We’ve got our heads round carbon reporting now. It’s now compulsory for companies listed on the main market of the London Stock Exchange, large privately-owned companies and LLPs. But natural capital accounting is the new carbon reporting. For too long we’ve believed that the unit of sustainability was the carbon molecule, but it’s really not. We need to be looking at how much companies impact on biodiversity and natural capital and what it costs.
Natural capital accounting is not yet mandatory for anyone, but over the next decade it will be become so. We all know how significant the crises around climate change and biodiversity loss are. We acknowledge that we are likely to see a string of extreme weather events and biodiversity crises over the next 10-20 years. However, many companies don’t yet seem to recognise that if they don’t get a handle on their impact on biodiversity and natural capital, their business will become increasing fragile.
Working out how and where you use natural capital is not just about accounting, compliance, and reducing your environmental impact; it can help you mitigate the risks to your business. These risks might relate to security of supply, legislation and policy, customer action and reputation, or the ability to secure finance.
This means, if you’re a manufacturer who uses a mineral that’s mined in a region that’s at risk of extreme weather, or a food ingredient from a country that’s being deforested at a damaging rate, you need to know about it. You need to start looking now for other sources for your raw materials or start to work with your supply chain to reduce their impacts. Most of all, you need to understand your level of exposure to nature risk. Companies that have the largest direct impacts on biodiversity and natural capital – such as energy, mining, manufacturing and fast-moving consumer goods –should be looking at this as a matter of absolute priority.
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Quantifying all the complexities of interrelationships between animals, plants and their environment, or how much clean air or water a company is using, can seem a daunting task. But companies need to realise that, whilst it is complex, it’s not impossible and it will help to establish them as a business fit for the future.
Good natural capital management can, increasingly, protect your ability to secure financing. The City is waking up to the E in ESG meaning more than greenhouse gas reporting. Private equity investors increasingly want to know that an acquisition target is addressing its natural capital issues before they become a major, and they’re also starting to ask to see more about the biodiversity footprints of investment targets.
As our economy emerges from the pandemic, the World Economic Forum is calling for a move away from business as usual to a climate neutral and nature positive future. So how can businesses succeed in this new environmental economy? It’s not just about mirroring your carbon reporting procedures with natural capital accounting; we need to move beyond the tick box. Sustainability and an understanding of our effects on the natural environment needs to become a central organising principle for business. The environment is the only place we have to live and we need to live within our means.
Dr Stephanie Wray is the managing director of Nature Positive (naturepositive.com).