Natural capital accounting gets a push at Global Green Growth Forum

Public and private sector leaders urged governments and companies to embrace natural capital accounting at the annual Global Green Growth Forum (3GF) on Monday. The annual gathering, launched by the Government of Denmark last year, convenes leaders from governments, businesses and international institutions to discuss strategies to accelerate the transition to sustainable growth.

One of the positive outcomes achieved on the sidelines of the Rio+20 conference, as highlighted by Jo Mackness at GreenBiz on June 26, was progress made on natural capital accounting. Fifty-seven countries and 86 companies, for instance, signed a World Bank-organized communiqué committing signatories to account for the value of clean air, clean water and forests in their decision-making.

World Bank Vice President for Sustainable Development Rachel Kyte, who announced the natural accounting communiqué in Rio, urged the 250 business, government and civil society leaders gathered at 3GF to build upon the commitments made at Rio+20.

"One of the good stories that came out of Rio is the growing convergence of interest about pushing this work forward," Kyte said.

The World Bank has decided, she added, that we have to "push this to the fore of our dialogue with our client countries, and with our partners in the private sector."

"The work we’ve been doing on natural capital accounting, but also the work we’ve been doing on understanding wealth -- if it’s natural capital, social capital -- trying to find what the new way of measuring progress really needs to be, I think this is taking off," she said.

"If we move to mandatory integration of financial and ESG [environmental, social, and governance] reporting of financial statements of companies, and have stock exchanges actually requiring that -- and, in Rio, we had four standing up, including BM&F Bovespa, who want to do that now -- this would be tremendously powerful," said Caio Koch-Weser, Vice Chairman, Deutsche Bank.

Deutsche Bank has concluded, he said, that companies need to "incorporate ESG, sustainability criteria, into business models and investor calculus." The bank had, Koch-Weser said, recently completed a meta-study of 100 studies from around the world "which all show that companies incorporating ESG into their business models already now confront a lower cost of capital."

"Clearly, investors, insurance companies and institutional investors can capture superior risk-adjusted returns by focusing funds on companies with best-in-class ESG performance," he said. "If you link in financial and ESG reporting as mandatory for stock exchanges then you unleash the trillions of dollars, risk-adjusted returns, in a far-sighted way."

Image of charts and euros provided by Ralf Kleemann via Shutterstock.

Usha Rao-Monari, Director, Sustainable Business Advisory, International Finance Corporation (IFC), who moderated a 3GF session on natural capital accounting, said business leaders don’t need to be persuaded of its value.

What she heard from business leaders at the session, which GreenBiz attended although it was closed to other press, was: "We would like to do more. We would like to be able to take the concept of financial capital that we have already identified, add it to the natural capital we have as a company, and then add it to social capital to come up with an overall value company concept."

That readiness to act, however, is tempered by the enormity of the task companies and governments have before them.

"The sobering realization is that this is not easy,” Rao-Monari said, “It’s not easy to say, "I’m using four cubic meters more of this, and this is what I value it at, and therefore this is something I should report on my balance sheet as a liability.' Who says it’s worth that much?"

"We need to come together -- the public and private sectors -- and come into actionable groups and see how we can tackle this issue of valuing natural capital in a step-by-step manner. You can’t get to perfection in six months," she said.

A first step, she said, is for companies and governments to take stock of resource consumption and rate of replenishment, and from there, move on to valuation.

"It requires agreements at all levels. It’s not just you as a company. The whole supply chain needs to be taken into account -- and that’s a good thing. Why? Because not every company has the wherewithal to do this, even if they have the will," Rao-Monari said.

She added that none of the companies at the session stated that they didn’t need or want regulation, but they said that there has to be an understanding on the methodologies and frameworks.

"We're at an inflection point where we can all decide to something small but moves the needle, or we can all sit back and say, 'I’ll wait for everything to be perfected before I move.' My vote is for the former," she said.

The reporting for this post was made possible by financial support from State of Green, the official green brand for Denmark, and a public-private partnership founded by the Danish Government and industry.