The Capitals Coalition -has just released the report Improving nature´s visibility in financial accounting. The document sets out the potential first steps to change the trajectory of sustainability reporting to build an appropiate accounting system that addresses a broader range of issues that meets business sector needs in terms of having access to information that recognises natural and social capital´s contribution to societies and economies.
The document is the result of a Coalition´s project, led by eftec. It includes four potential methods developed by different authors that advocate to move towards developing financial accounts that support environmental sustainability. The text is the result of the analysis of several case studies that illustrate how can we represent natural capital account data in financial accounts today and, how the two accounts can be integrated in the future.
The four proposed methods are:
Method 1 – Integrating Natural Capital Accounting practices into Financial Accounting of Intangible Assets: Treating some investments to enhance natural and human capital as an “intangible asset” under existing accounting standards (International Accounting Standard).
Method 2 –Value Added Statement for Nature: Reshaping the income statement to show how much of the value generated by companies is “given back” to nature.
Method 3 – Comprehensive Accounting with Respect to Ecology (CARE) Model: Including new types of liabilities and assets that reflect debts to (as a result of inputs from) natural and social capital.
Method 4 – Integrating Natural Capital into Financial Accounting: Illustrating integration of financial and natural capital into a single income statement and balance sheet.
The role that accountants play to support business to adopt policies which are aligned with the necessary sustainability of ther businessess and help prepare them for potential risks is crucial. Addressing resources and relationships in terms of capitals can bring significant advantage for them to fulfill this task, while it facilitates that their organisations demonstrate their contribution and leadership promoting a positive change through disclosure and accountancy.
Given that financial accounting is a key decision making tool, linking natural capital data with financial accounts is a logical route to explore. This is precisely the contribution made by the authors of the present document. They show how accounts could evolve to make natural capital more visible to decision makers or in corporate disclosure.