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Natural capital accounting

Natural capital accounting is also referred to as environmental-economic accounting.

It provides a way to measure and monitor the health and value of natural assets and the services they provide. By understanding the extent and condition of our natural capital and the services and benefits it generates, decision makers are better informed of the impacts, dependencies and outcomes of their policies and actions.

In general, natural capital accountants have a background in economics or accounting. They use traditional accounting methods (including the concepts of assets, liabilities and balance sheets) in conjunction with geo-spacial data and other relevant information.

Natural capital accounting can be used to determine the:

  • extent of a natural capital asset – what it is, where it is and how big it is
  • condition of an asset – how healthy it is
  • services an asset provides – this might include cleaning the air, reducing erosion or providing other ecosystem services
  • benefits an asset provides – this might include health and wellbeing for local communities, food and fibre and providing tourism opportunities.

The four box model at the heart of the UN SEEA

Extent, condition, services, benefits

A silhouette of a tree in a field for the natural capital accounting page

The accounting process

To start the accounting process, we look at locations in nature and reimagine them as groups of assets. In the same way that a business may have a factory with four machines, a location in nature, such as a water catchment, may have several assets, including wetlands, rivers, forests and farmland.

Once we understand what and where the assets are, we need to record their condition. Are they in good health? Or do they need restorative work done on them?

Then we ask about the services and benefits the assets provide. Are they cleaning the air? Are they providing food for our communities? We can measure all of these. In most cases, one asset will provide more than one service.

For some assets, there will be financial benefits from nature, such as incomes from a haul of tuna or a harvest of wheat. But there will also be other benefits, like the long-term health benefits to the people in a community who are exercising on and around a lake. These benefits can be measured in financial terms using various economic valuation techniques.

The United Nations System of Environmental-Economic Accounting (SEEA) is the international statistical standard for natural capital accounting. We explain the SEEA in more detail here.

How can you apply natural capital accounting?

Natural capital accounting enables organisations to:

  • measure and communicate the outcomes of natural capital projects (investments)
  • assess the risks and opportunities arising from changes in natural capital, including as a result of climate change
  • understand, prepare for and engage in emerging nature based environmental markets
  • examine an area and the surrounding landscape to understand the direct and wider benefits it provides – including productivity, profitability and biodiversity outcomes.

In order to do this, we use various frameworks, methods, applications and tools. We explain these in detail in the next section, titled ‘Decluttering the natural capital space.’

Want to know more? Our Director, Carl Obst, recorded this webinar for NRM Regions Australia as an overview of natural capital accounting.

An overview of natural capital accounting

Decluttering the natural capital space for the resources pageDownload the overview of natural capital accounting that we produced in partnership with NRM Regions Australia.

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