As well as Natural Capital becoming an important part of your sustainability reporting, there is a practical approach for organisations to integrate Natural Capital into financial accounting. Using a robust monetary valuable, when market prices are obtained from exiting market structures, can be used to determine the economic value of an environmental benefit.
The idea of being able to monetise Natural Capital is to take on the challenge of economic invisibility of the natural environment and, in turn, develop a new economic model that works with nature. This naturally becomes an increasingly important factor when constraints on resources could become a significant risk to some businesses as the resources they need become scarce.
In terms of approaches, there are a few different ways of monetising Natural Capital:
Secondary Data Valuation
This is Market-based direct valuation based on market prices, for example the Net Present Value of harvested timber (£/ha).
The idea here is that when the market is functioning well, the market prices depict the marginal benefit of a good/service and the Net benefit can then be calculated by combining the price with quantity and cost estimates (Natural Capital Coalition)
The Non-Market valuation techniques are slightly different. These might take into account cost based calculations, such as working on the estimate of avoided damage or ecosystem replacement.
Avoided damage costs might come from thinking ahead and protecting a coastal region, and in turn, people and property are prevented from being lost and degraded and this has an associated economic value.
Secondary Data Valuation
This technique differs from the previous ones and relies on secondary data to apply value estimations to similar scenarios. It can be a useful technique when other market techniques are not available.
It works by applying existing value estimates to similar cases such as a value transfer of wetland value per hectare (£/ha).
In many cases, Natural Capital accounting will most likely involve a mix of these techniques, depending on the data available at the time of valuation and the type of environmental dependency that is being monetised. By integrating Natural Capital into Financial Accounting as well as Sustainability Reporting, it is possible to value and monetise it, with some significant long-term environmental and economic benefits.
To find out more download our ‘Beyond CSR Reporting: How to Value Natural Capital’ eBook:
[Image Credit: Jules Crompton]