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At a joint session as part of EU Green Week 2020 hosted by ACCA, the Capitals Coalition and Deloitte, experts discussed the benefits of putting the value of natural capital at the heart of business decision making.
The success of organisations around the world is dependent on the value they receive from natural capital.
While many organisations understand this in theory, most do not possess the tools or frameworks necessary to understand the nuances of their relationships with the capitals (natural, social human and produced) and how, by investing in their health, they are able to deliver multiple benefits for themselves and the rest of the system they depend upon.
Too often businesses make decisions that exclude the value they receive from natural capital, leading to decisions that can be inefficient, ineffective or even damaging to businesses and investors as well as to communities and the natural world.
This disconnect can be exacerbated by inadequate or insufficient regulatory/legislative environments and/or tax and market incentives. As a result, decision-making often fails to deliver sustainable prosperity.
In the light of the EU Green Deal and new EU Biodiversity Strategy, ACCA (the Association of Chartered Certified Accountants), Capitals Coalition, and Deloitte organised a session at the EU Green Week 2020 that discussed opportunities for improving business decision-making by adopting a ‘capitals approach’. Case studies from the global luxury goods group Kering and ABN-Amro Bank presented business reporting, governance and decision-making tools and explored how best to integrated them into existing processes. The discussion also considered what remains to be done to mainstream this approach.
Sharon Machado, head of Business Reporting at ACCA and the session moderator opened the debate, saying: ‘Businesses need strategies to transform natural capital vicious cycles into virtuous ones, based on the 4Rs: remove the negative impact activity; reduce - so lessening activity therefore impact; restore; and importantly reimagine success, for example circular economies, where waste or liability in one business is an asset for another.
‘All of these, but especially reimagining success, needs businesses to transform. Here the skills of the modern-day accountancy and finance profession are important to accompany business towards successful transition.’
Discussions confirmed that natural capital will, to a greater or lesser extent, be material for all business, and therefore better connectivity is needed for quality decision making, and that it is a journey with challenges.
Many businesses need a change in mindset, which will lead innovative transformative change, focused on an integrated multi-capital approach to decision making and disclosure.
Sirpa Pietikäinen MEP said: ‘It is important to understand the ecological impact through the life cycle of businesses. For this, we need natural capital accounting, and we need financial and ecological reporting through an integrated reporting scheme. All companies should have transitional plans which should be in annual reports. We also need to globally bring natural capital accounting and initiatives together and incorporate them with the Taxonomy. We are taking baby steps, but the work is going forward. We need specialists in financial sector to make this happen and innovative legislation that is effective.’
This was echoed by Martin Lok, Deputy Director, Capitals Coalition: ‘We have to bring all existing initiatives together in order to align approaches to embed the value of nature, people and society into all decision-making. Understanding complexity through capitals approach is key for this. Based on such an approach we collaborate with our community to create four changes: change the math and the measures of what is success; Change the way we have conversations by including all relevant stakeholders; Change rules of the game that is the regulations and incentives. Based on these changes, our ambition is to change the system and achieve a new normal where values of nature, people and society are part of all decisions. By creating a positive feedback loop between business, finance and governments, by working together, we can create the change we need.’
The debate also highlighted that quality assurance is only really possible if there is transparent and consistent approaches employed by business. Comprehensive and coherent measurement, accounting and reporting standards are thus the way forward, at global level.
Eric Dugelay, TCFD member and Sustainability Partner at Deloitte concluded: ‘To ensure stakeholders’ trust in the non-financial information publicly reported by companies, be it on climate, natural capital or more broadly on ESG, my conviction is that, aside common reporting standards, companies need to report on SMART (Specific Measurable Achievable Relevant and Timeframe) indicators. And those indicators, together with the other non-financial information companies report, should be subject to independent external assurance: financial and non-financial information are of comparable importance for the users of companies’ corporate reporting, if not completely interconnected and dependent!’