Developing Corporate Natural Capital Accounts

Transcription

1 Developing Corporate Natural Capital Accounts Colin Mayer 1

2 The Independent advisory committee to the Government, reporting to the Economic Affairs Committee chaired by the Chancellor. Provides advice in annual State of Natural Capital reports. Key aim is to incorporate natural capital into decision making at both the public and private sector levels, hence our work on corporate natural capital accounting. 2

3 Conventional (e.g. SEEA) Approach Conventional approach is to value natural capital services. Starting point is physical assessment of natural capital assets. Value services from market prices, revealed preferences such as hedonic prices and stated preferences. Then discount the values to the present at an appropriate rate social discount rate, market rate, time preference rate. 3

4 Problems High margins of error on imputed values. Sensitivity to discount rates. Open ended nature of assets mountains, sunshine. Double counting virtually everything is included in land values. 4

5 Scale of natural capital. Comparisons with material, human, social capital. Most valuable forms of natural capital. Where they are located. What Questions Does Conventional Approach Answer? => These are all important issues but none of these establish whether natural capital is being preserved or protected. 5

6 The Origins of the Conventional Approach Conventional approach emanated from Solow debate about whether exploitation of natural resources was consistent with sustainable growth. The conclusion was that it was under certain assumptions about the savings rate of an economy. Provided that benefits of exploitation sufficiently invested then can maintain constant consumption path. 6

7 The Substitutability Debate Underlying this is an assumption that natural capital is substitutable for other forms of capital. Sustainable growth is therefore consistent with the extinction of natural capital. Is this consistent with what is commonly understood by sustainability? 7

8 The Cost Approach An alternative approach involves determining the cost of maintaining natural capital. What is the cost of maintaining the existing services derived from natural capital. The degree of substitutability is determined by units of account. Similar services are derived from units of account allowing for substitutability within but not across units. Justification for limited substitutability is option value of natural capital to future generations who are not able to voice an opinion. 8

9 The Maintenance Charge The maintenance charge is the cost of being able to sustain a profile of natural capital services. Equivalent to the landowner having to account for the deterioration of the properties from which derives rents in arriving at an income net of maintenance costs. Going forward an obligation to maintain the asset will require a stream of maintenance charges that create a liability associated with the asset. 9

10 The NCC s CNCA Framework Documents both assets and liabilities in a balance sheet format that extends traditional financial reporting to include natural capital. Forward looking recognises long term costs and benefits of maintenance. Asset register includes data on the quantity and condition of natural capital, and then tracks benefit flows and their values. Reports changes in natural capital assets relative to a baseline. Reports both the private value and external benefits from natural capital. 10

11 What we have done Over the course of 2014: Developed a generic corporate natural capital accounting (CNCA) framework. Piloted it with: Lafarge Tarmac; National Trust The Crown Estate; United Utilities. Engaged with a wider group of organisations to assess the framework: Learned lessons to improve the framework and produce generic guidelines for other organisations to follow. Government Academics PLCs NGOs Accounting bodies Landowners 11

12 National Trust Balance Sheet Cont d Wimpole Estate 2013 Pre 2008 Farm contracted out intensive arable farming. Poor soil quality. Intensive crop rotation Management of farm taken on by NT Organic farm under Higher Level Steward Scheme. While crop values may change, this is offset by the higher price of organic produce and lower level of inputs required. Overall net revenue from farming systems is roughly equal but. Improved ability of soils to sequester carbon, providing richer habitat for biodiversity and enhanced visitor experience. Change in land management resulted in a 4.4m increase in external value. 12

13 CNCA: A More Comprehensive Account (National Trust Pilot) Enclosed farmland Semi-natural grassland Aesthetics Clean Air Scope of financial account Clean Water Cultural Ecosystem services 1 Equable climate Fibre Food Hazard protection Recreation Woodlands Open water bodies Enclosed farmland Semi-natural grassland Scope of natural capital account Woodlands Open water bodies Wildlife Key: Significant ecosystem service flow by habitat Available in account Potential but not significant ecosystem service flow Partly available in account No ecosystem service flow by habitat Not available in accounts 13

14 National Trust Balance Sheet Wimpole Estate

15 Benefits of CNCA CNCA assists with determining: The value to an organisation of their natural assets; The cost of maintaining them; Changes in their condition over time; Risks from depleting them; Opportunities from utilising them; Returns from investing in them; Their effect on stakeholders and communities. 15

16 Who is the Audience for CNCA? Organisations that: Own, are responsible for, or rely on significant stocks of natural capital; Have an explicit or implied responsibility to maintain their natural assets intact; See potential benefits from enhancing or better utilising their natural assets; Seek to reduce operational risks through improved management of their natural assets. 16

17 Next Steps Committee s third State of Natural Capital report (SoNC3) will be published on 27 th January It will bring together the Committee s workstreams of the last three years, including how CNCA fits in. It will make clear recommendations to Government on both methodology and implementation More detailed reports and generic guidance for organisations wishing to undertake their own CNCA will be published alongside SoNC3. 17