Guarding against perverse outcomes from natural capital thinking

We Value Nature

We Value Nature seeks to support businesses and the natural capital community to make valuing nature normal for businesses across Europe. At times, this mission attracts concern due to the perceived risk that business may perversely apply natural capital accounting to justify damage to species and eco-systems.

Recognizing that this worry is legitimate and important, we have developed some considerations that may help mitigate this risk in a new briefing paper: this short blog is a summary of the longer paper.

Critical to our discussion is the distinction between quantification, evaluation, monetization and marketisation of natural capital and we note that concerns are more likely to arise in the monetization/marketing aspect of valuing activities.

Valuing nature involves developing knowledge that fits with decision making needs. At times decision making might focus on financial valuation, but equally values held by stakeholders may reflect social, cultural or ecological values. With this in mind, we introduce the notion that there is a ‘monetization frontier’ beyond which any financial valuation will be unreliable and not useful for decision making (drawing from work by Bob Frame and Martin O’Connor that is referenced in the full piece). Developing wisdom about how to value nature and also how to use valuations in decisions is one way to mitigate risks of perverse outcomes of nature becoming commoditized and ‘traded’ off against monetary values.

We also discuss the different scales for natural capital evaluations (ranging from macro to entity level) and how well these scales fit with ecosystems. In this respect, the scale of organisational activities may be such that evaluation is only possible once the organisation’s connection to natural capital flows and dependencies are fully articulated. Likewise, it may be that national or regional scales (where legal and regulatory frameworks focus on nature interactions) are more ecologically salient than entity level assessments. This is where the advent of the Task-Force for Nature-Related Financial Disclosures is set to play an interesting role in articulating between different scales (nature to organisations) and between different ways of valuing nature.

The final theme we considered related to different forms of accounting and distinguished between financial and management accounting. We suggest that financial accounting may be less amendable to natural capital accounting than internally focused decisions (the domain of management accounting activities). At the same time, we also suggested that ecosystem-centric management accounting might also be a useful innovation. This type of account uses accounting information to provide strategies and negotiate responsibilities for ecosystem improvement. In this way, a narrow entity focus is replaced with one that uses natural capital accounting to provide a basis to shape collective efforts and articulate joint responsibilities for outcomes.

Follow the authors on Twitter: Tom Cuckston (@Tom_Cuckston), Shona Russell (@shonalrussell) and Jan Bebbington (@JanBebbington)

Download the full briefing paper