Finance officers urged to make business case for natural capital
Chief finance officers are being urged to look beyond short-term corporate reporting and start accounting for natural capital in their balance sheets.
A joint report just out from the Chartered Institute of Management Accountants (CIMA), EY the International Federation of Accountants (IFAC) and the Natural Capital Coalition has warned that natural capital depletion will leave businesses ‘dangerously exposed’ unless they start being more proactive in tackling the issue.
It points to finance professionals, particularly those in leadership roles, as having a vital role to play in helping to navigate their organisations through the challenges and opportunities that natural capital depletion will create.
According to CIMA’s head of sustainability research & policy Sandra Rapacioli, accounting for natural capital issues isn’t easy. “Just because it’s hard doesn’t mean it shouldn’t be done,” she said.
“[Finance professionals] have the skills and oversight to show the connections between natural capital, commercial opportunity and business risk, and ultimately, financial performance.”
The study goes so far as to call natural capital “the elephant in the boardroom” and claims that businesses continue to treat these resources as if they are infinite.
While it acknowledges the work of a few corporations such as Dow Chemical and Kingfisher who are actively mitigating against rising input costs and supply chain risks, it urges other firms to follow suit.
Its advice to finance officers includes raising natural capital as a strategic issue and making a business case for it that can be presented to the board. In addition, to measure natural capital inputs and impacts, and value those where appropriate.
IFAC CEO Fayez Choudhury said that accounting for natural capital must be something the accountancy profession increases its focus on.
“Accountants, many of whom are in leadership roles in their organisations, play a pivotal role in preparing their organisations to embed considerations of natural capital in their decision making,” he argued.
Meanwhile, the Natural Capital Coalition executive director Dr Dorothy Maxwell warned that businesses who fail to adapt in a world of increasingly scarce resources will lose competitiveness as the value of these resources is realised through tighter regulation, consumer choice and limited supply.
Last year edie reported on a similar warning issued by the World Forum on Natural Capital; that businesses were in danger of underestimating the importance of placing value on this issue.
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