Accountants guilty of ignoring material 'natural capital' risks

Almost half of firms regard their relationship with so-called natural capital as a "material issue" for their business, but reporting on environmental impacts and risks remains immature and patchy.

That is the conclusion of a major new report from the Association of Chartered Certified Accountants (ACCA), consultancy giant KPMG and NGO Fauna & Flora International, which finds that the concept of natural capital -- defined as "the stock of capital derived from natural resources such as biological diversity, ecosystems and the services they provide" -- is gaining traction in many boardrooms.

The report, Is natural capital a material issue?, surveyed more than 200 accountants at large firms and carried out in-depth interviews with several leading chief financial officers.

It found that 60 percent of respondents acknowledged that the services provided by the natural world were "important" to their business, while 49 percent identified natural capital as a "material issue" for their business and linked it directly to "operational, regulatory, reputational and financial risks."

However, the report also found that while growing numbers of businesses operating in sectors with relatively high environmental impacts are now providing "substantial detail" on their natural capital impacts and risks, the majority of public disclosures on the issue are "too limited to provide insights into risk management."

Moreover, a narrow majority of firms still do not regard natural capital issues as material, despite the fact universal services such as clean air, water and soil are critical to every organization's supply chains and long-term risk profiles.

The report also highlighted how a number of barriers make it difficult for accountants to include natural capital metrics in corporate reports, including the absence of standardized accounting principles for measuring environmental services and impacts and a lack of clarity surrounding the business case for natural capital reporting.

Image of report provided by Dragon Images via Shutterstock. 

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