Sustainability Pathways

Natural Capital Accounting

Natural capital describes the finite stock of Earth’s natural assets (soil, air, water, biodiversity) that provides a flow of ecosystems services that benefit society and the economy. Natural capital is comprised of ecosystems that provide a renewable stream of goods and services, and non-renewable deposits of fossil fuels and minerals.

Natural capital is one of several different types of capital. Others are financial, manufactured, intellectual, human, and social and relationship capital. Through their activities and outputs, producers and businesses combine and transform different types of capital to produce goods and services. In doing so, the stocks of different types of capital may be increased or diminished.

Natural capital is the foundation of economies. Businesses, and agriculture in particular, depend on natural capital to be viable. However, in the current business model, natural capital has been largely neglected; it is ‘economically invisible’. As a result, we are witnessing the over-exploitation of our finite natural capital through climate change, soil erosion, water pollution and loss of biodiversity and wild habitats such as forests and wetlands. The increasing scarcity of both renewable and non-renewable natural resources impacts on the sustainable development of farmers, businesses and nations. The degradation of natural capital imposes external costs on society and future generations. These costs can be better understood and addressed by accounting for natural capital.

The Natural Capital Coalition (NCC) is a global, multi-stakeholder platform to advance the business case to integrate natural capital into business and investment decision making. The Coalition includes leaders from business, government, international organizations, civil society and wider stakeholders. Through the Natural Capital Protocol project, the aim is to improve our understanding of the true value and dependencies on natural capital, including the risks and opportunities that are associated with this relationship. Building on existing initiatives, the project aims to develop a harmonized framework to support natural capital accounting, so that businesses can better measure and manage their environmental impacts.

As part of a collaborative consortium (IUCN, CISL, EY, IERS, Trucost, True Price), FAO is involved in developing the sector guide for food and beverages. The guide will support the Natural Capital Protocol by focusing on natural capital accounting specifically for the food and beverages supply chain including the production of agricultural commodities. Agriculture has high environmental impacts and is deeply dependent on natural capital. Already, farmers and producers are affected by climate variability, water scarcity, soil erosion and increasing energy prices. Therefore, the food and beverage sector is an ideal candidate for early adoption of natural capital accounting, to achieve greater resilience and promote a more sustainable model of production.

FAO and Trucost are conducting an environmental materiality assessment for selected agricultural commodities (by December 2014), as an input to the Food and Beverage Sector Guide. Following a period of pilot testing, the final publication of the Sector Guide is expected be completed by the end of December 2015.