Understanding the value of natural capital for compliance and risk officers

Understanding the value of natural capital for compliance and risk officers
January 28, 2016

What is it natural capital?

In the Natural Capital Committee’s 2013 report, natural capital is defined as “the elements of nature that directly or indirectly produce value to people, including ecosystems, species, freshwater, land minerals, the air, and oceans, as well as natural processes and functions.”

In other words, natural capital can be thought of as the stock of physical natural resources and the ecosystem services that they provide within each country.

With the global population heading toward 11.2 billion in the year 2100, the world is facing unprecedented pressure to support human activity and consumption. According to recent statistics, natural capital is depleting at a rate of 50 percent more per year than the earth can replenish—and this rate continues to accelerate.

Natural capital will not only have profound consequences on society and the economy, it has the potential to create major strategic implications for many business models.

The Natural Capital Project (NCP)

A growing consensus among world leaders, social scientists, and the accounting community suggests that our sustainability depends on managing and maintaining natural capital. As a result, a new protocol for applying natural capital to business decisions has been developed by the NCP.

Today, forward-thinking businesses who recognize the risks that natural capital poses are currently developing and using a myriad of ways to address the challenges.

For example, the NCP responded by producing Natural Capital Principles and a framework that aims to help businesses understand the value of natural capital and improve decision-making. It's applicable to all sectors and geographies, providing a standardized framework. The draft was released for public comments on June 26, 2015.

Summary of the Principles and Protocol Framework June draft

The framework is based on 4 principles, and it guides the business user through 4 logical stages and 10 steps.

Access the full draft here. Principles
  1. Relevant: Ensure that the assessment identifies the natural capital impacts and/or dependencies that are most important and relevant for business and its stakeholders, and is capable of informing effective decision-making in a timely fashion.

  2. Rigorous: Ensure that the assessment uses the most technically correct—from a scientific and economic perspective—information, data, and methods available, and are most fit for purpose.

  3. Reliable: Ensure that the assessment is credible, and, where applicable, transparent and traceable. All assumptions, data, caveats, and approaches are tracked and communicated openly and honestly. This allows for verification or an audit trail, if required.

  4. Consistent: Ensure that the assessment measures and values impacts and/or dependencies within a consistent scope throughout. This scope will be chosen by the organization to best meet the objectives of its application of the protocol.

Stages and steps

The stages of the Natural Capital Protocol are all connected, meaning it's possible to retrace and repeat steps that will help with calculating the value of natural capital at your organization.

Source: "NATURAL CAPITAL PROTOCOL PRINCIPLES AND FRAMEWORK." (2015). Natural Capital Coalition. Retrieved from: http://www.naturalcapitalcoalition.org/js/plugins/filemanager/files/NCC_....

What does the Natural Capital Coalition expect compliance and risk officers to do?

Here are a few ways to get started:

Why should compliance and risk officers be interested in natural capital and the NCP?

For businesses to be viable over time, the ecosystems and resources they depend on must be maintained.

The current business model creates significant environmental externalities that are not priced. For example, the damages from climate change, pollution, land conversion, and depletion of natural resources. As a result, there's a growing case for understanding the dependencies business has on natural capital, the risks and opportunities associated with this relationship, and their real economic value.

Integrating natural capital in business should result in better decisions with the benefits of greater resilience and improved security of supply, so ultimately, a long-term sustainable business model will emerge.

For more information about the value of natural capital, see the resources listed below.

The Natural Capital Protocol website
Taking Stock: Existing Initiatives and Applications
Publicly Available Methodologies
Liv Watson

About the author

Liv Watson the Director of New Markets at Workiva, with primary focus on monitoring and evaluating new market opportunities globally. She helped found the XBRL International and is one of the original developers for XBRL.