Accounting for Natural Capital: How Do You Actually Go About It?

In November of this year, Edinburgh will host the inaugural World Forum on Natural Capital. More frequently industry and large corporations want to account for their natural capital impacts, and companies like Trucost are doing just that.

As reported by Trucost Chief Executive Richard Mattison to Triple Pundit, his company helped Puma and Parent Company Kering publish the world’s first EP&L statement in 2011 Trucost measured Puma’s operational and supply chain impacts, back to raw materials, in traditional sustainability metrics, and then went further by providing “environmentally extended input-output (EEIO) modeling;” an economic technique that identifies the interdependencies of different branches of an economy.

After evaluating environmental hotspots in Puma’s supply chain tiers Trucost combined these data with PUMA’s previously collected data to deliver a complete environmental footprint. The final stage was to apply natural capital valuations to the footprint data in order to create the EP&L statement. Mattison describes for Triple Pundit how Trucost arrived at one of the key valuation metrics: water.

“Inaccurate pricing of water leads to perverse market incentives and presents risk to water-intensive business inputs derived from vulnerable regions… For example, 11 of the 31 dry regions of mainland China provinces create 52 percent of China’s industrial output and 40 percent of agricultural products. These are the driest provinces with water resources comparable to those of the Middle East,” writes Mattison.

The World Economic Forum cites “water supply crises” among the most material risks facing the global economy. Understanding the non-market value of water helps to shift the focus from a supply-side approach of water management, to one that also recognizes the need for demand management. It also helps companies to identify risk from more accurate water pricing – and optimize operations and supply chains in line with rising costs.

“Natural capital accounting at the product level identifies opportunities to holistically reduce natural capital costs…Companies best positioned to compete in the future will be those that are able to decouple growth from unsustainable dependency on vulnerable natural resources. Natural capital accounting enables companies to do just that by identifying opportunities to optimize operations, supply chains and product portfolios in line with resource availability and environmental cost.”