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Accounting for Sustainability: Natural Capital

I agree with the Prince of Wales: Sustainability requires creative accounting.

Although sustainability has many contested definitions, one point of agreement is that natural capital matters.  Natural capital provides life support, energy, resources, and other goods and services upon which life, liberty and markets depend.  We need to know how much we have, how fast we are using it, how fast it can be replaced, and how to best allocate it.

This is where business management, economic, and accounting experts are needed.

The World Business Council for Sustainable Development (WBCSD) released the Guide to Corporate Ecosystem Valuation in April of this year, making it increasingly clear that sustainability is good for business and business can be good for sustainability.  Allow me to quote extensively from the WBCSD report:

“Ecosystem degradation presents a real, and increasingly pressing, risk to business operations. A number of global initiatives have highlighted these issues over recent years, and are beginning to shed light on the value of ecosystem services and the cost of their degradation and loss … This affects businesses and impacts on corporate profits, production and market opportunities. The clear message to business is that the status and functioning of ecosystems is not just a biological or ecological concern. It has major implications for economic growth, human well-being and business performance….

“Our leading companies understand, for example, that freshwater is a critical input for most, if not all, major industrial process, and that pollination and pest regulation are essential for food production. Unfortunately, biodiversity loss and ecosystem degradation are continuing to escalate, thereby putting business at risk. These risks are real, but if managed properly, can be transformed into new opportunities….

“The underlying business case for undertaking Corporate Ecosystem Valuation is that it enables companies to improve decision-making and thereby increase revenue, save costs and boost the value of their assets and potentially share prices…

“Ecosystem values will be increasingly considered by the finance sector and business-to-business customers as they assess the biodiversity and ecosystem-related risks and opportunities of investments and supply chains.”

The Guide to Corporate Ecosystem Valuation is a step-by-step manual for assessing natural capital (a key component of sustainability) and integrating it into business decisions.  The extent to which accountants and economists can help businesses achieve these goals will likely determine the degree to which capitalism can be made sustainable.  Businesses are the engines by which society consumes natural capital.  They convert it into products, goods and services that give value and meaning to humans.  They direct and determine progress in our capitalist society. Accountants and economists provide the tools that steer where these engines take us.   The extent to which universities and professional societies supporting accountants and economists can provide the tools and training to measure and value natural capital, and incorporate those measures and values into business decisions, may determine whether and how sustainability is achieved.  Students selecting business-related programs of study should select among those that emphasize sustainability.

As we pursue this future let us not neglect the advice of Albert Einstein: “Many of the things you can count, don’t count. Many of the things you can’t count, really count.” Business guru Edwards Deming focuses this advice on managers: “The most important figures that one needs for management are unknown or unknowable…but successful management must nevertheless take account of them.” Or, stated differently, many of the important things that must be managed, such as some ecosystem services, probably can’t be measured.

R. Bruce Hull, IV, Ph.D. is a professor in the College of Natural Resources at Virginia Tech practicing social ecology. His work focuses on healing forests fractured by pressures of urbanization and globalization. He is author and editor of over 100 publications, including two books: Infinite Nature (Chicago 2006) and Restoring Nature (Island 2000). He serves on the editorial advisory board for Gale’s GREENR environmental and sustainability studies web portal.

Posted on: July 7, 2011, 10:12 am Category: Opinions Tagged with: , , ,

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