This article was first published in the February 2016 International Edition of Accounting and Business magazine.

After 20 years managing the site of its decommissioned dioxane facility in Terneuzen in the Netherlands, chemicals company Dow decided to try a new approach to land remediation – a natural solution. 

With the groundwater still containing high concentrations of the chemical, the conventional technique – to pump and treat – would have cost nearly US$2m and required water additives. Instead, in 2012 the company planted 240 trees on the site. After three years, scientists observed the roots drawing in the dioxane, a process expected to continue as the trees mature. The company says the project has cost half of what conventional methods would have required and also reduced the impact on the land and the water. 

While the project makes simple business sense, it nevertheless reflects a change of direction for Dow. The innovation involved the concept of natural capital – the ecosystems underlying a company’s natural resource use. The company is one of 80 members of the Natural Capital Coalition (NCC), a diverse consortium that is influencing the creation of the natural capital protocol, a management tool under consultation whose final version is due out in June. 

It uses natural capital awareness to help guide decisions and assess environmental risk. This means considering the activities and value of the land, water and plants, as well as the ecosystems they embody, to improve a company’s conception of risk. 

Mark Gough, director of the NCC, says: ‘Most businesses have some idea of where they make an environmental impact but very few have an idea of their dependencies. The natural capital protocol will help them connect both, which is important.’ The dependencies, he says, can be a source of the risk.

Companies might previously have measured impacts such as greenhouse gas emissions in terms of tonnes of gas produced or spillage fines. They might have estimated changes in the state of the natural capital they use. They might have created a natural capital asset register. They might even have valued their impacts and dependencies. 

However, Gough suggests they probably won’t have considered why they were making those assessments nor what the point of them might be. ‘They will probably not have integrated this into the management process,’ he says. 

The protocol is the outcome. It is an attempt to harmonise previous approaches to natural capital and to improve decision-making. It aims to link environmental impact data back into management decision-making and direction. 

Breaking new ground

The protocol accordingly  breaks some new ground in terms of consolidating patches of existing practice among different businesses and making its mark as a corporate responsibility management tool. Coalition members range from ACCA to Tata Power and Burberry to Skanska. 

The ‘natural capital’ term is fairly recent. Its use suggests its potential destination as a component of balance sheets alongside financial capital. There, it might transform existing land asset figures, for example, by incorporating the value of ecosystem services – the ecological activities from which resources originate. These range from photosynthesis to pollination or wetland retention.

However, the protocol does not go that far. Companies adopting the protocol can opt to report, but don’t have to. So far, few have, and even fewer have attempted financial valuations – one of the potential long-term outputs of the protocol. 

Two of the pioneers here are German sportswear producer Puma and Danish pharma company Novo Nordisk. In its environmental profit and loss account, published in 2014, Novo Nordisk valued its water use for 2011 at €34m. Greenhouse gases were estimated at €171m and air pollution at €18m. Each figure was split into the various tiers of the company’s supply chain and own operations. The report states: ‘If environmental costs relating to water consumption, greenhouse gas emissions and air pollution were to be internalised, Novo Nordisk would have to pay €29m in 2011 for operational activities (core activities) alone.’ 

Anne Gadegaard, senior global adviser on corporate sustainability at Novo Nordisk, says there were surprises: ‘The process helped look at the company’s generation of its environmental footprint in a completely different way.’ As a result, the company found it had overestimated activities at its factories. ‘The biggest effects come from leasing and what we buy from suppliers. Among them, consultancies have a big impact,’ says Gadegaard.

Novo Nordisk’s efforts consist largely of environmental footprint calculations. However, they also contain a natural capital component. For example, the company assesses the cost of using a plot of land to grow corn instead of forests. Its valuation includes estimates of pollination services and carbon sequestration. 

However, most corporations do not go that far, limiting their assessments to tonnes of polluting gases, for example. Valuations are fraught with difficulty because of the very character of natural systems, whose boundaries are hard to define and whose categories are not discrete. ‘In conventional accounting, you know what to include and what to leave out. But you can’t measure natural capital without making subjective judgments,’ says environmental accounting expert Robert Gray of St Andrews University.

Among the natural capital accounting problems is the assessment of marginality. Scientific uncertainties shroud the functioning of ecosystems, often making it difficult to assess whether a given change is marginal or not, and when thresholds are being approached or crossed. 

Non-linearity represents another difficulty. Many ecosystems do not respond to disturbances in a linear way, so their supply may appear to be relatively unaffected by increasing disturbance until they suddenly hit a tipping point when a dramatic response occurs. 

Finally, it is not always possible to predict with any degree of accuracy what species will do when their habitat has been upset.

Accordingly, the natural capital measurement tool can work only as a rough guide at best, and the protocol falls short of providing a method. ‘Natural capital accounting is evolving using better guidance and metrics over time to develop a rule of thumb as the science isn’t always there to answer the questions,’ says Karen Ellis, chief adviser on economics and development at conservation organisation and NCC member WWF UK.


Ellis foresees a number of uses for the protocol and natural capital accounting generally. The most obvious might be to assess an existing plant site for different remediation methods, as in the Dow case. 

Another could be planning authorities using zoning maps to indicate which part of a landscape or river provides the highest ecosystem services. That analysis could help determine whether to provide a new habitat for a species upstream or perhaps improve a completely different area to protect that same species. 

‘Planning does take habitats into account, for example, and this can get used as a reason to refuse a new property development,’ says Ellis. ‘But more often it doesn’t. Natural capital assessments embed this thinking more systematically into the process.’

Alternatively, companies might assess the impact of a potential new site more effectively by using a kind of stress test incorporating the longer-term natural resource risks of settling there. ‘It helps businesses better understand the risks of using natural capital in a whole landscape,’ says Ellis.

While the tool is initially meant for internal decision-making and investigation, it could evolve further. ‘Ultimately we would like to get to the point where we have a single reporting tool and can make comparisons,’ Ellis says. If nothing else, the natural capital protocol signifies that big business recognises the increased risk of greater natural resource scarcity and damage. It demonstrates a recognition that they need to control resource use more consciously. Above all, it helps justify continued activity and wins them more public support. 

Elisabeth Jeffries, journalist