Natural Capital Accounting Research Articles

Natural capital accounting in the context of the socio-economic paradigm of financial reporting: conceptual and methodological aspects

In the context of ensuring sustainable development, the activities of a business entity have come to be viewed as a three-component system designed to provide reliable information on the contribution of business to the social and environmental segments of the economy. This trend has led to the transition to the financial reporting socio-economic paradigm, which predetermines its revolutionary transformations, one of which is finding ways to recognize natural capital and disclose information about its impact on the business entity’s value. In the article the conceptual foundation for the recognition of natural capital and impact of its disclosure in financial statements on the business entity’s value has been provided. The methodological aspects of the recognition of two forms of natural capital (natural resources and ecosystem services) have been analyzed. The generalized model for the recognition of natural capital based on the IFRS system has been proposed. The system of accounting and financial reporting of the Republic of Moldova in the context of the transition to the socio-economic concept of disclosing information about the business entity’s value has been characterized.

Biophysical and economic assessment of four ecosystem services for natural capital accounting in Italy

We present methods and results of country-based natural capital assessments for four ecosystem services (ES) in Italy. The spatial mapping and the assessment have been carried out in both physical and monetary terms for (i) crop pollination, (ii) outdoor recreation, (iii) flood regulation (iv) and water provision, using the ARIES (Artificial Intelligence for Ecosystem Services) technology, which provides and integrates the necessary data and models. Extent, supply and use accounting tables have been developed for the same ecosystem services in line with the United Nations System of Environmental Economic Accounting (UN-SEEA) guidelines and Experimental Ecosystem Accounting (EEA) initiative. This work represents a first official and nationwide assessment of ecosystem services for the Italian Government in accomplishment of the Italian law n. 221/2015, applying a variety of different models and economic valuation methods to provide systematic and replicable information on natural capital through national accounting tables. We find that land management and maintenance of the countryside and forestland, which represent the typical Italian landscape, are fundamental. Our application also identifies several modelling challenges that need to be addressed before a methodological path for integrated ecosystem and economic accounting may be considered rigorous and reliable.

The natural capital indicator framework (NCIF) for improved national natural capital reporting

It is now widely recognised that components of the environment play the role of economic assets, termed natural capital, that are a foundation of social and economic development. National governments monitor the state and trends of natural capital through a range of activities including natural capital accounting, national ecosystem assessments, ecosystem service valuation, and economic and environmental analyses. Indicators play an integral role in these activities as they facilitate the reporting of complex natural capital information. One factor that hinders the success of these activities and their comparability across countries is the absence of a coherent framework of indicators concerning natural capital (and its benefits) that can aid decision-making. Here we present an integrated Natural Capital Indicator Framework (NCIF) alongside example indicators, which provides an illustrative structure for countries to select and organise indicators to assess their use of, and dependence on, natural capital. The NCIF sits within a wider context of indicators related to natural, human, social and manufactured capital, and associated flows of benefits. The framework provides decision-makers with a structured approach to selecting natural capital indicators with which to make decisions about economic development that take into account national natural capital and associated flows of benefits.

A sustainability scoreboard for crop provision in Europe

The System of Environmental-Economic Accounting for Agriculture, Forestry and Fisheries (SEEA AFF) offers the possibility to assess and report detailed accounts for primary industries while establishing important linkages with relevant ecosystem services, in line with the SEEA Experimental Ecosystem Accounting (SEEA EEA). In this paper, crop products and crop provision as ecosystem service are coherently merged to build a sustainability scoreboard for selected crops in European countries. The sustainability scoreboard uses the SEEA AFF accounts for crop products with data inputs from FAOSTAT and the Integrated system of Natural Capital Accounts (INCA) of the Joint Research Centre (JRC) for ecosystem services. The combined FAO-JRC accounting table described in this paper provides a common ground and measurement tool towards a sustainability scoreboard, useful to analyse how relevant economic, social and environmental components behave by country. This newly derived sustainability scoreboard presents significant differences with respect to analyses based on standard agricultural statistics. Lack of sufficiently accurate data remains the major limitation to current fuller implementation of the sustainability scoreboard. However reasonable assumption can be made that ongoing international data collection processes (including FAO questionnaires) integrated with Geographic Information System (GIS) analysis will supply in the near future additional relevant and applicable information.

Integrating Plant Diversity Data into Mapping and Assessment of Ecosystem and Their Services (MAES) Implementation in Greece: Woodland and Forest Pilot

Research Highlights: This is the first approach that integrates biodiversity data into Mapping and Assessment of Ecosystem and their Services (MAES) implementation and natural capital accounting process, at the national scale, using an extensive vascular plant dataset for Greece. Background and Objectives: The study aims to support the MAES implementation in Greece, by assessing, as a pilot, the woodland and forest ecosystem type; the targets of the study are: (a) Identify and map ecosystem type extent; (b) identify ecosystem condition using biodiversity in terms of plant species richness (i.e., total, ecosystem exclusive, endemic, ecosystem exclusive endemic diversity); (c) develop ecosystem asset proxy indicators by combining ecosystem extent and ecosystem condition outcomes; (d) identify shortcomings; and (e) propose future steps and implications for the MAES implementation and natural capital accounting, based on biodiversity data. Materials and Methods: Following the national European Union’s and United Nations System of Environmental Economic Accounts-Experimental Ecosystem Accounting (SEEA-EEA) guidelines and the adopted National Set of MAES Indicators, we developed a set of four proxy ecosystem asset indicators to assess ecosystem types with respect to ecosystem area extent and ecosystem condition. This was as interpreted by its plant diversity in terms of species richness (total, ecosystem exclusive, endemic, and ecosystem exclusive endemic diversity). Results: The results revealed that when indicators use well-developed biodiversity datasets, in combination with ecosystem extent data, they can provide the baseline for ecosystem condition assessment, ecosystem asset delineation, and support operational MAES studies. Conclusions: The relation among biodiversity, ecosystem condition, and ecosystem services is not a linear equation and detailed, fine-scale assessments are needed to identify and interpret all aspects of biodiversity. However, areas of importance are pinpointed throughout Greece, and guidance is provided for case-study selection, conservation strategy, and decision-making under the perspective of national and EU environmental policies.

Maintaining Natural Capital Stocks: An Insight into Traditional and Modern Approaches

Natural capital refers to the natural environment around us that provides the goods and services to sustain life on this globe and includes soil, air, water, plant and animal biomass, forests, fish populations and mineral deposits. Sustainability could be defined as the level of consumption that satisfies the demand of the present without compromising the need of the future generations and not demeaning natural capital stocks. A serious threat to the current framing of natural capital is its apparent seclusion from financial capital and mainstream economic and social activity. This seclusion leads to indiscriminate use of nitrogen fertiliser to increase productivity per unit area in crop fields or decreased protein returns in aquatic habitats ultimately leading to ecological mayhem. However, indigenous people living in traditional societies are found to have strong conservation ethics arising out of their age-old ecological knowledge, protecting natural capital in their native homeland. The sacred groves in India, Tukano Indians in North West Brazil, tribesmen in TransFly region in Papua New Guinea, Masai in African Savanna are some of the examples. This article highlights some of the novel approaches adapted to protect natural capital and includes Payments for Ecosystem Services (PES) and natural capital accounting. PES are evolving as a creative and motivational strategy for natural capital conservation in many parts of the world, especially in Latin America. The natural capital accounting assign monetary value to natural capital and could bridge the apparent seclusion of natural capital from financial capital. The national Governments and world leaders are taking a broader perspective to look into the options of sustainable development to maintain natural capital stocks and many such projects are put forth in different countries. The Millennium Ecosystem Assessment and Sustainable Development Goals lead to a system of largescale management called the Ecosystem Approach involving multiple stakeholders. The primary goal is protecting ecosystem components and processes for the long term, keeping an eye to the present needs also. The PES and natural capital accounting are two important gauge of sustainability protecting mother nature from indiscriminate handling by its most rational offspring.

Natural Capital Accounting for Land in Rwanda

Land, as a valuable natural resource, is an important pillar of Rwanda’s sustainable development. The majority of Rwanda’s 80% rural population rely on agriculture for their livelihood, and land is crucial for agriculture. However, since a high population density has made land a scarce commodity, growth in the agricultural sector and plans for rapid urbanisation are being constrained, and cross-sectoral trade-offs are becoming increasingly important, with a risk that long-term sustainability may be threatened if these trade-offs are not considered. To help track land value trends and assess trade-offs, and to help assess the sustainability of trends in land use and land cover, Rwanda has begun developing natural capital accounts for land in keeping with the United Nations’ System of Environmental-Economic Accounting. This paper reports on Rwanda’s progress with these accounts. The accounting approach adopted in our study measures changes in land use and land cover and quantifies stocks for the period under study (2014–2015). Rwanda is one of the first developing countries to develop natural capital accounts for land, but the wide range of possible uses in policy analysis suggests that such accounts could be useful for other countries as well.

Accounting for natural capital has cross-cutting relevance for UK public sector decision-making

Countries have made a range of international commitments to compile and use natural capital accounts. While processes and methods for compiling natural capital accounts are now well defined, mainstreaming natural capital accounting (NCA) across public sector decision-making remains a practical challenge. This raises the question: which domains of public sector decision-making are important for a phased introduction of NCA? Here, we address a subset of this evidence gap through systematic analysis of the policy-relevance of natural capital accounts in the United Kingdom (UK). We identify 85 UK public sector bodies whose activities can affect the extent or condition of natural capital assets, and 60 bodies whose policy objectives are qualitatively contingent on natural capital stocks or services. For each of these 60 public sector bodies natural capital management (1) is a core policy priority, (2) impacts on policy objectives by regulating natural hazards, or (3) provides ecosystem goods and services that support policy objectives concerning health and well-being. Our findings highlight the considerable cross-cutting relevance of natural capital for public sector decision-making, and the need to account for natural capital in policy domains beyond those focused narrowly on environmental policy and management, e.g. through coordination structures that feature cross-departmental representation.

Designing the special pilot economic zone on peatlands

<p><em>Peatland restoration projects in tropical countries could prevent environmental disasters such as peat fires. In Indonesia, one of peatland restoration activities is the revitalization of the livelihoods of communities around peatlands. Nevertheless, this activity is still lacking in reducing the environmental pressures from the communities on peatland. We aim to find a comprehensive strategy to design a sustainable bioeconomy on peatlands. This study draws on spatial, qualitative, and quantitative data from the literature, project and policy documents, open-source web application, observations from the field and meetings; and interviews with key stakeholders at national level and three Indonesian provinces. We found that an ecosystem-based special pilot economic zone (SPEZ) is a potential proposal that can provide a framework for a sustainable peatland bioeconomy. We suggests seven phases for planning and implementation of the SPEZ; 1. Preparing its spatial planning to support its legal aspects; 2. Field observation to derive biophysical information of the location and determining peatland suitability; 3. Identifying target group, paludiculture commodities and alternative livelihoods; 4. Analyzing the value chain, market demand and conducting a cost-benefit analysis; 5. Natural capital accounting; 6. Designing social innovation to trigger investment and market chain; and 7. Community engagement. From our study in Riau, South Sumatra, and Central Kalimantan, each of the phase present different challenges and opportunities especially in terms of regulation for land permit, institutional arrangement, market chain for peat products, remuneration of external benefits, and perception and capacity of community for cultivation on peat.</em></p><p><strong><em>Keywords</em></strong><em>: </em><em>L</em><em>ivelihood, peatland, paludiculture, special pilot economic zone, Indonesia. </em></p>

Revoking coal mining permits: an economic and legal analysis

ABSTRACT Achieving mitigation targets under the Paris Agreement will depend on the early retirement of coal mines and plants over the next decade. In the absence of sufficiently stringent demand-side policies, supply-side injunctions provide a potential avenue to expedite the decline of coal. In many coal-producing jurisdictions, the law provides grounds to revoke coal mining permits. Recent plans to phase out coal use in Germany provide an interesting testing ground for this concept. We study the case of permits granted to RWE Power AG to continue operating Europe’s largest opencast lignite mine, situated at the 12,000-year-old Hambach Forest in the state of North Rhine-Westphalia (NRW). We conduct two complementary assessments: (i) a legal analysis finding that German law provides several grounds for the revocation of coal mining permits, particularly when linked to quantifiable damages to local ecosystems and communities; and (ii) an economic analysis using natural capital accounting to quantify the environmental and societal costs associated with alternative scenarios of continued and halted mining activity. We find the net present value of gains from immediately halting operations at the Hambach lignite mine to be €98–208 billion over 34-years, equivalent to 13–30% of NRW’s annual GDP. Health-related savings from avoided air pollution are 6.5 times greater than costs of replacing lost capacity with new renewable energy and battery storage infrastructure and two orders of magnitude greater than costs of compensating laid-off mining workers. Key policy insights The revocation of coal mining permits could be a legally plausible and replicable means of expediting the decline of coal. Natural capital accounts highlight the third-party costs of coal mining, quantifying the often-ignored health-related damages from polluting activities. Legal criteria adopted by agencies when assessing coal mining permits should be modified to accurately reflect considerations of climate change, local ecology, human health, and national policy. Independent and externally reviewed natural capital assessments should be required as standard protocol for the issuance of fossil fuel exploitation permits. Debates about appropriate levels of compensation to coal companies for premature mine closures should factor in the implicit and explicit subsidies such companies have received in the past.

Progress in natural capital accounting for ecosystems.

Global statistical standards are being developed

Cloud-computing and machine learning in support of country-level land cover and ecosystem extent mapping in Liberia and Gabon.

Liberia and Gabon joined the Gaborone Declaration for Sustainability in Africa (GDSA), established in 2012, with the goal of incorporating the value of nature into national decision making by estimating the multiple services obtained from ecosystems using the natural capital accounting framework. In this study, we produced 30-m resolution 10 classes land cover maps for the 2015 epoch for Liberia and Gabon using the Google Earth Engine (GEE) cloud platform to support the ongoing natural capital accounting efforts in these nations. We propose an integrated method of pixel-based classification using Landsat 8 data, the Random Forest (RF) classifier and ancillary data to produce high quality land cover products to fit a broad range of applications, including natural capital accounting. Our approach focuses on a pre-classification filtering (Masking Phase) based on spectral signature and ancillary data to reduce the number of pixels prone to be misclassified; therefore, increasing the quality of the final product. The proposed approach yields an overall accuracy of 83% and 81% for Liberia and Gabon, respectively, outperforming prior land cover products for these countries in both thematic content and accuracy. Our approach, while relatively simple and highly replicable, was able to produce high quality land cover products to fill an observational gap in up to date land cover data at national scale for Liberia and Gabon.

A Natural Capital Approach to Agroforestry Decision-Making at the Farm Scale

Background: Agroforestry systems can improve the provision of ecosystem services at the farm scale whilst improving agricultural productivity, thereby playing an important role in the sustainable intensification of agriculture. Natural capital accounting offers a framework for demonstrating the capacity of agroforestry systems to deliver sustained private benefits to farming enterprises, but traditionally is applied at larger scales than those at which farmers make decisions. Methods: Here we review the current state of knowledge on natural capital accounting and analyse how such an approach may be effectively applied to demonstrate the farm-scale value of agroforestry assets. We also discuss the merits of applying a natural capital approach to agroforestry decision-making and present an example of a conceptual model for valuation of agroforestry assets at the farm scale. Results: Our findings suggest that with further development of conceptual models to support existing tools and frameworks, a natural capital approach could be usefully applied to improve decision-making in agroforestry at the farm scale. Using this approach to demonstrate the private benefits of agroforestry systems could also encourage adoption of agroforestry, increasing public benefits such as biodiversity conservation and climate change mitigation. However, to apply this approach, improvements must be made in our ability to predict the types and amounts of services that agroforestry assets of varying condition provide at the farm or paddock scale.

Scotland’s natural capital asset index: Tracking nature’s contribution to national wellbeing

Understanding the contributions from the environment to society is seen as increasingly important globally. In Scotland this is currently a high priority, as policymakers begin to shift attention away from traditional wellbeing indicators such as GDP. Although alternative natural capital accounting techniques exist, and are useful for creating commeasurable market values, they are unable to account for the full suite of benefits derived from the environment. Scotland’s Natural Capital Asset Index (NCAI) is an attempt to create an account of Scotland’s natural capital stock and how it’s potential to contribute to wellbeing changes on an annual basis. This paper describes the inputs, calculation process and results of the NCAI. It also reports on sensitivity testing of the model, which found the model to be robust, credible to policy makers and meaningful, thus achieving the overall aims of the indicator.

Natural capital – a practitioner’s overview of concepts and applications

ABSTRACTWorking with the concept of natural capital has changed the way we do environmental economics in practice. This article sets the scene by defining natural capital, natural capital approach and natural capital accounting. The reasons why businesses prepare natural capital accounts are summarised. The article concludes with thoughts on what the future holds for the natural capital approach.

Natural capital accounts: nations and organizations

ABSTRACTNatural capital accounting is a new tool in environmental management. It can be understood as a new (and better) combination of existing tools used in economic analysis with environmental data. It articulates technical and scientific understanding of the environment in economic value terms for decision-makers. The various current forms of environmental, ecosystem and natural capital accounting are described. Examples are given of natural capital accounting for the urban environment at different spatial scales, from a single park to a UK national urban account. Reliance on economic valuation of the environment also brings risks, so understanding is needed of how values are generated, good practice in presenting them (e.g. alongside physical measures for context), and what they miss (e.g. stating key unvalued issues and being aware of potential threshold effects). The structure of natural capital accounting helps mitigate these risks, and so it can be used as a positive tool to highlight the value of the natural environment as an asset to our present and future society. Building on existing understanding and tools means natural capital accounting can be relatively easy to initiate.

Urban natural capital accounts: developing a novel approach to quantify air pollution removal by vegetation

ABSTRACTAir pollution presents a major risk to human health, resulting in premature deaths and reduced quality of life. Quantifying the role of vegetation in reducing air pollution concentrations is an important contribution to urban natural capital accounting. However, most current methods to calculate pollution removal are static, and do not represent atmospheric transport of pollutants, or interactions among pollutants and meteorology. An additional challenge is defining urban extent in a way that captures the green and blue infrastructure providing the service in a consistent way. We developed a refined urban morphology layer which incorporates urban green and blue space. We then applied an atmospheric chemistry transport model (EMEP4UK) to calculate pollutant removal by urban natural capital for pollutants including PM2.5, NO2, SO2, O3. We calculated health benefits directly from the change in pollutant concentrations (i.e. exposure) rather than from tonnes of pollutant removed. Urban natural capital across Britain removes 28,700 tonnes of PM2.5, NO2, SO2, O3. The economic value of the health benefits are substantial: £136 million in 2015, resulting from 900 fewer respiratory hospital admissions, 220 fewer cardiovascular hospital admissions, 240 fewer deaths and 3600 fewer Life Years Lost.

Green growth and pro-environmental behavior: Sustainable resource management using natural capital accounting in India

The natural capital (NC) of India and its management system are essential conditions of the welfare path to the sustainable development of the country. We conduct an accounting process for India's NC to measure sustainability to ensure that future generations will have the equal total wealth per capita accessible to them as that available to the present generation. We then describe the combination of the renewable and non-renewable NC that is relevant within the concepts of welfare and sustainability. First, we note that India has successful forestation, which has enhanced welfare for its residents. However, the other renewables (e.g., cropland, fishery) and non-renewables (e.g., fossil fuels, minerals) are continuously degraded as a result of economic development and population growth. Second, we discuss the correlation between sustainable resource management and pro-environmental behavior (PEB) and explain the importance of considering these factors to achieve green growth. Third, to provide practitioners with useful information on how to promote PEB and to discover the determinants of PEB, we analyze the survey data of 5,200 respondents from all Indian states. We identify that environmental knowledge is an important determinant of individuals’ PEB in India. In the policy analysis, we evaluate the challenges to achieving sustainable development goals (SDGs) using NC accounting in India. We recommend several policy implications to maintain NC at a sustainable level and to achieve SDGs.

Corporate natural capital accounting

Accounting is an important practical mechanism by which corporations are held to account for their performance and impact. This is consequential for corporate responsibility for the conservation of natural capital. While there is clear evidence of increasing corporate accounting and reporting with respect to aspects of natural capital, however, such efforts are at best nascent. This is in part because the purpose and meaning of corporate natural capital accounting is not in itself well established, and in part because existing institutional structures and incentives do not lend themselves to giving a full account of natural capital impact. In this context, the paper argues that there is essentially a need for natural capital accounting and reporting systems that serve two distinct purposes. The first, which is the more likely to be satisfied by existing market structures, is oriented towards the informational needs of shareholders and is concerned with supporting a transition towards environmentally sustainable business models. The second, in contrast, acknowledges that a shareholder-oriented perspective constrains natural capital to be important if, and only if, its conservation privately affects shareholders, which is unlikely to ensure an accounting that contributes to the conservation of natural capital as an end in itself. This second purpose of strengthening corporate natural capital accountability is unlikely to be satisfied within existing market structures; instead, it stands in need of a regulatory solution.

The ecology of natural capital accounting

Natural capital is increasingly widely discussed and included in corporate and governmental accounts, using a variety of different approaches and metrics. Here I argue that natural capital is fundamentally an emergent feature of structures and functions of the natural environment. Therefore its valuation and metrics for reporting on its condition and the way that it is represented in accounts need to reflect these defining features and not rest solely on measurable flows of goods and services. Natural capital is an asset, and its many contributions to the economy and society, often called ecosystem services, are both malleable and adaptable. Their value changes with time and context as they become more or less important and relevant for particular purposes. Unlike most produced assets, natural assets are multifunctional, adaptable, and resilient, and within limits they have the capacity to regrow or reorganize themselves. Maintaining this capacity is therefore the key priority for a responsible owner or manager of natural assets. Currently most metrics for natural capital are based on the quality or quantity of flows of goods and services, on the geographical distribution of particular ecosystems or land/sea uses, and by reference to ecosystem services delivered by particular ecosystems. The advantages and disadvantages of these different approaches are discussed, but I propose instead using the quality of fundamental ecological processes and functions which properly represent the functioning and capabilities of the natural capital system upon which society and the economy depend.