Plans to strengthen corporate and national environmental accounting are included in a White Paper published by the UK Department for Environment, Food & Rural Affairs (Defra) in June. The Paper sets out the Government's vision for the natural environment over the next 50 years.
It outlines plans to record economic losses and gains from the value of natural capital - the stock of physical assets such as soil, forests, water and biodiversity, which provide flows of services such as pollination, natural hazard protection and climate regulation. The Paper warns of the failure of markets to recognise the financial value of some of these ecosystem services, and the loss of economic value that results from their degradation. "Short-term valuation and, in some cases, the absence of pricing are symptoms of market failure," says the Paper. "One of the main causes for this has been that the full costs and benefits of natural capital have been left off the balance sheet."
This can result in over-consumption and depletion of natural capital, which can affect businesses through problems such as resource shortages and supply disruptions, price spikes, higher insurance premiums and reputational issues over environmental damage. The White Paper sets out measures to account for the value of natural capital to deliver more balanced decisions about use of the natural environment.
Defra will publish new guidance on how business can measure and report corporate environmental impacts next year, covering key areas such as water use and waste, as well as impacts on natural resources and biodiversity. It will complement existing Government guidance on how to report on greenhouse gas emissions. "Businesses will need to measure their environmental impacts in order to compete successfully in a greener market," says the White Paper. A business-led Ecosystem Markets Task Force will review opportunities for UK business to expand green goods, services, products, investment vehicles and markets.
The Government also plans to include natural capital alongside GDP in UK Environmental Accounts from 2013, and to support international efforts to value natural capital. Annual environmental costs from global human activity were estimated to amount to US$6.6 trillion in a study published by the UN Principles for Responsible Investment and UN Environment Programme Finance Initiative earlier this year. Findings show that more than 50% of company earnings could be at risk from environmental costs in an equity portfolio weighted according to the MSCI All Country World Index.
Managing risks and opportunities from environmental costs will be discussed at a Trucost/UN PRI breakfast briefing in London on 23 June.
Defra Natural Environment White Paper
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