Natural capital accounting
Natural capital accountants frame nature as capital and then estimate the services and benefits it provides.
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 the natural capital asset – what it is, where it is and how big it is
- condition of the asset – how healthy it is
- services the asset provides – this might include cleaning the air, reducing erosion or providing other ecosystem services
- benefits the asset provides – this might include health and wellbeing for local communities, food and fibre and providing tourism opportunities.
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 restoration?
Then we ask about the services and benefits the assets provide. Are they cleaning the air? Are they providing food for our tables? 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.
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.
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