Along with questions about the nature of the corporation – monster and psychopath or historically-contingent legal person capable of evolving? – Six Capitals was driven by the question of how to make nature count, so we don’t continue to destroy it in our endless pursuit of more GDP and profits. The accountants’ solution to this question of nature is to redefine it as natural capital.
I’ve been planning to write about natural capital here for some time, initially prompted by Tony Abbott and Joe Hockey’s refusal to countenance the discussion of climate change at the G20 conference in Brisbane, a forum they wanted focused squarely on economic growth, as if the two were separate issues. But Barack Obama, Angela Merkel, Xi Jinping, Francois Hollande and other leaders scuppered that plan. Climate change became one of the G20’s talking points and was included in the G20 communique.
What I’m really interested in is the debate that continues to erupt around natural capital accounting in the UK. The concept of natural capital has been around at least since 1973 – when the term was first explicitly used by British economist EF Schumacher in his book Small is Beautiful – but it only made its first formal appearance on the world stage in 2012. Here are some highlights in the recent history of natural capital:
– in 2012 the United Nations gave natural capital equal status to the GDP, officially adopting a new statistical standard to account for natural capital. This was the first new UN standard since the advent of its GDP accounting standards in 1952.
– the same year 40 financial institutions, including the National Australia Bank, signed the Natural Capital Declaration to promote the private sector’s use of natural capital accounting by 2020. At the launch the World Bank’s Rachel Kyte said: ‘Let’s look back in twenty years from now and remember that this was the time when we changed the way we accounted for nature.’
– in 2012 at the Rio+20 conference on sustainable development over 50 countries and 86 companies committed to valuing natural assets, including Walmart, Woolworths and Unilever.
– in 2013 the inaugural World Forum on Natural Capital was held. The second World Forum on Natural Capital is being held in Edinburgh in November 2015.
So, things are proceeding apace for natural capital.
What is natural capital? The World Forum on Natural Capital defines it as ‘the world’s stocks of natural assets which include geology, soil, air, water and all living things’. It continues:
‘It is from this Natural Capital that humans derive a wide range of services, often called ecosystem services, which make human life possible. The most obvious ecosystem services include the food we eat, the water we drink and the plant materials we use for fuel, building materials and medicines. There are also many less visible ecosystem services such as the climate regulation and natural flood defences provided by forests, the billions of tonnes of carbon stored by peatlands, or the pollination of crops by insects. Even less visible are cultural ecosystem services such as the inspiration we take from wildlife and the natural environment.’
The problem with our current accounting systems – both national and corporate – is that they don’t account for natural capital, they don’t value living nature, and so it is invisible.
For many accountants (like Michael Peat), ecological economists (like Robert Costanza), bankers (like Pavan Sukhdev), ecologists (like Mark Everard) and environmentalists (like Tony Juniper), the best way to make nature visible is to translate it into the dominant global language: economics. In this language nature becomes ‘natural capital’.
It is exactly at this moment – the very conception of nature as capital – that journalist and environmental activist George Monbiot recoils from the new accounting paradigm. And it is also at this moment that I find myself torn between the two sides of the debate, which first erupted in 2012 with Monbiot’s article on biodiversity offsetting (an offshoot of natural capital accounting) and continues to blaze.
In April Lynn Crowe, Professor of Environmental Management at Sheffield Hallam University, responded to Monbiot’s article damning natural capital accounting ‘Can you put a price on the beauty of the natural world?‘ (published on 22 April 2014, Earth Day) and Tony Juniper’s reply ‘Framing natural capital: economy and ecology are not in competition‘.
She said: ‘As ever, I find my heart in complete agreement with George, but my head is wavering towards the Tony Juniper position.’
Although I wouldn’t express it in quite the same way (head versus heart as if they were so easily separable), I find myself similarly torn between the logic of these divergent views. Their range was well expressed by Lynn Crowe herself, Robert Costanza, Joss Tantram and Tony Juniper in ‘Is natural capital a neoliberal road to ruin?’, published by the Guardian on 1 August 2014 in response to Monbiot’s speech ‘Put a price on nature? We must stop this neoliberal road to ruin‘.
On her blog Crowe said of Monbiot’s ‘perceptive comments’: ‘I agree with many of his concerns about policies such as biodiversity off-setting and similar approaches which appear to ignore the intrinsic value of nature. But I don’t believe we can blame the tool for the way it is used by others. The powerful have always abused their position, and no doubt will sadly continue to do so. We can only continue to lobby and campaign to try to bring about change where necessary.
‘I believe an ecosystem approach is still a powerful technique for framing our decisions about the use of natural resources which reflects the integrated nature of our environment and society generally.’
The rapid rise of natural capital accounting is helped by the fact that it’s easier to gauge than the other new capitals (intellectual, human, and social and relationship capital). There are now rigorous metrics for carbon and measures for water usage are being developed. Its language is now spreading into the broader environmental conversation. For example, it makes possible the spectre of ‘stranded assets’ in relation to the stocks of carbon held by fossil fuel companies, an idea being used by financial analysts as well as by Bill McKibben’s 350.0rg to call for investors to pull out of fossil fuel companies.
Natural capital is on the agenda at the Accounting Frontiers Forum – ‘Beyond the financial: Re-thinking the capitals in practice and assurance’ – being held next Thursday 11 December 2014. Professor Roger Burritt and Michael Spencer will be speaking about natural capital accounting.
I also learnt (from Sally Hill of Wildwon, which hosted the B Lab meeting last week) about a conference being held by the Australian Institute of Environmental Accounting in Sydney’s Customs House next May. I’ll be writing about it when more information is available.
I think the question of how we value and account for nature – or, how we make nature count – will be the most important question of this century. And given the rapid rise of natural capital accounting, I think anyone who cares about the future of the planet should pay attention to it right now.