ACCA (The Association of Chartered Certified Accountants), KPMG and Fauna & Flora International, have investigated the concept and existing use of materiality in light of the increasing significance of natural capital as a business risk.
The new report entitled: Is natural capital a material issue? An evaluation of the relevance of ecosystem services to accounting professionals and the private sector will be officially launched at a briefing event held in London today.
Natural capital – the stock of capital derived from natural resources such as biological diversity, ecosystems and the services they provide – is in decline globally. The loss of natural capital exposes companies to a range of new risks and opportunities that can impact profit, asset value and cashflow. Civil society is increasingly concerned about the loss of natural capital, but are companies identifying and measuring these issues? When do they become material?
The report explores the current response of the accountancy profession to the increasing importance of natural capital as a business issue. It involved a survey of more than 200 accountancy professionals, interviews with CFOs and senior management from eight major companies, a disclosure survey of corporate reporting by 40 organisations in specific sectors, and desk-based research into relevant literature and work in the field.
Key findings of the survey include:
- Perceptions of Natural Capital as a risk are variable within the accountancy profession
- Current disclosures on Natural Capital, as currently practised, are too limited to provide insights into risk management
- A handful of companies in high environmental impact sectors are reporting substantial detail on aspects of Natural Capital, but the majority are reporting little or no information due to the perceived immateriality of the issue
- There are a number of barriers to corporate action such as the lack of a standardised business case, low or unclear market values for some aspects of Natural Capital and some accounting principles
- 60 per cent of respondents agreed that the natural world was important to their business
- More than half of the respondents had included natural capital issues in their company’s business risk evaluations at some point, and
- Nearly half (49 per cent) of respondents identified natural capital as a material issue for their business and linked it to operational, regulatory, reputational and financial risks
Author of the report, Dr Stephanie Hime of KPMG’s Climate Change and Sustainability practice, said: 'Specific parts of Natural Capital are increasingly being recognised as critical and material business issues. This report aims to bring a new audience into the debate by focusing attention on what the accountancy profession can do to mitigate these risks.'
Head of Sustainability at ACCA, Rachel Jackson, said: 'ACCA strongly believes that considerations should be made by accountancy bodies to make their members aware of the need to account for natural capital within the company annual reports and accounts, as well as sustainability reports in order to avoid failures when anticipating future risk and their associated costs to business.'