Case Study AICPA&CIMA: Natural Capital Accounting

Revisiting the elephant in the boardroom

Stephen Jollands, John Burns, and Markus Milne from University of Exeter and University of Canterbury explore the devastating human impact on ecological systems worldwide that is limiting humans’ ability to ensure long-term sustainability (WWF, 2018). They discuss the benefits that Natural Capital Accounting can bring to integrating natural resources with economic analysis to provide a broader picture for the development of growth policies

Many organisations are stewards of such systems, or their operations significantly impact them, so there is a responsibility to address the stresses placed upon ecological systems. By making ecology “visible” in conventional business operations, managers can better understand the effects of their behaviors and respond accordingly. 

Natural capital accounting (NCA) offers a uniform approach among organisations. Critics of NCA argue that the monetary quantification of ecology and the economic language of “natural capital” creates a form of commodification, allowing it to be viewed as another resource that markets will trade, value, and preserve, which will accelerate exploitation (Sandel, 2013; Monbiot, 2017). To the extent that NCA is premised on the economic rationale of maximising utility, its practical use may clash with ecological boundaries based on scientific and other value perspectives. Issues also arise in the attempt to represent complex and poorly understood systems through simple monetised calculations, which may fail to represent the many competing values that exist in relation to ecological systems, such as cultural and ethical values (Sullivan, 2017).

A case study was undertaken of Forest Enterprise England (FEE), an agency of The Forestry Commission responsible for management of the public forest estate within England. Several methods were used to collect data including interviews, document analysis, and observation of NCA-related practices to produce a detailed understanding of the experiences of one of the first major organisations to implement and use NCA practices. Examining the implementation of NCA at FEE over several years suggests that its use is far from straightforward.

Results from the case study suggest that, although the CFO is an important advocate for the use of NCA and the management accountant is crucial in collating data into spreadsheets, it takes a lot of specialised knowledge of the local ecology to assess what should be included in the calculations, what data exists in relation to these items, and how best this data can be captured. FEE, for example, employs several specialists, including ecologists, with this type of knowledge. Even so, FEE’s NCA has gaps within its approach, about which the organisation is transparent.This suggests that one of the benefits derived from the use of NCA is the learning that it requires organisation members to undertake.

This learning was evident at FEE, where people without ecological training could discuss such matters in interviews and various meetings. Although they would typically defer to their colleagues with special knowledge, they were at least able to be part of the conversation. These conversations were less about numbers and more about the ecological systems under the organisation’s stewardship and the services that these provided. In these conversations, they found that what is important is not quantifying natural capital into monetised amounts but rather understanding the stock of natural capital, the flow of ecosystem services, and the related maintenance. FEE’s experiences demonstrate how NCA may be used to prompt discussions that extend beyond the normal boundaries of the organisation. An organization must be open to discussing issues in public that in the past have been “off limits.” The use of NCA prompts, rather than suppresses, debates that acknowledge the plurality of values that may exist in relation to the ecological resources an organisation has stewardship over.

These debates must not become an excuse for not improving the stewardship of ecological resources under the organization’s control. At FEE, NCA was used to justify government funding as a defense against privatisation. However, now that this purpose has been served, what else can NCA offer to further manage the stewardship of the ecological systems under its control? A particular challenge for all organisations using NCA is how to use the unexpected knowledge gained about the ecological resources and services under their control in order to improve their stewardship.

Accountants seeking to employ NCA within their organisations will likely face numerous challenges. Understanding its ecological context requires an organisation to focus on issues beyond its comfort zone, and not all organisations have the resources to employ specialists. As with many new accounting tools, the implementation, calculation, and use of NCA in practice is not simple nor straightforward.

Dr. Stephen Jollands
University of Exeter

Professor John Burns
University of Exeter

Professor Markus Milne
University of Canterbury