Investors size up corporate sustainability

Palm oil, beef and sugar are not only essential agricultural commodities; they also have an enormous impact on natural capital – the stock of ecosystems and biodiversity that generates vital goods and services for society.

Our continued exploitation of natural capital threatens to push ecosystems over the brink – causing their degradation or even collapse – and reducing the flow of essential goods and services to people.

Businesses and investors alike are starting to realise that the unsustainable use of natural resources is a dangerous gamble, as they rely on many of these resources to function, boost profitability and manage risk. Numerous companies have already begun managing their impacts on natural capital and reporting on their sustainability practices to help investors make informed decisions.

However, a new paper by ACCA (the Association of Chartered Certified Accountants), Fauna & Flora International (FFI) and KPMG argues that we need more robust and consistent reporting on impact management, and commitments to reduce impacts on natural capital.

State your impacts

The paper found that several companies who use the commodities beef, cotton, palm oil, soya or sugar intensively are reporting their relationship with them and their efforts to improve the sustainability of the way they source and use them.

But aside from a handful of companies, most businesses haven’t yet started reporting on natural capital. Even those that do report are generally not doing so consistently, leaving investors unable to compare how different companies are managing their natural capital risks and opportunities and in turn manage their own investment risks.

What investors now need are ways to accurately and consistently measure management of natural capital (like forests and biodiversity), common standards to make reporting comparable across companies, and more detailed reporting on management approaches, to enable them to factor natural capital into their investment decisions.

Companies also need to consider all of their operations – including risks within their supply chains – when evaluating and reporting on their natural capital risk and opportunity.

“By managing natural capital sustainably, companies can help to ensure these goods and services are available to them, and to all of society, for the long term,” said Zoe Balmforth, FFI’s Senior Technical Specialist, Business & Biodiversity. “They can also mitigate their own business risks – for example from disruptions to supply chains and operations, future changes to legislation and the impacts of reputation.”

The paper, ‘Business and investors: providers and users of natural capital disclosure’ is the second in a series of short briefing papers that follow up on the 2012 report ‘Is natural capital a material issue? An evaluation of the relevance of biodiversity and ecosystem services to accountancy and the private sector.’

Read the full briefing paper Business and investors: providers and users of natural capital disclosure (PDF).