Natural Capital Accounting and Costing
Natural Capital is another term for the stock of renewable and non-renewable resources (e.g. plants, animals, air, water, soils, minerals) that combine to yield a flow of benefits to people. By looking at how we depend on nature and natural systems, as well as how we are impacting on their health; we move beyond just measuring to understanding the relative importance and worth, or value, to inform decision making for change. Natural Capital accounting changes the way we think about our relationship with nature.
For accounting definition, Natural Capital has wider coverage than environmental assets, defined as “the naturally occurring living and non-living components of the Earth, together constituting the biophysical environment, which may provide benefits to humanity”. Natural Capital also include non-living or abiotic resources such as oil and gas and ground-water.
The identification and allocation of environmental costs for accounting techniques are input/outflow analysis, flow cost accounting, activity-based costing and lifecycle costing. Metsims is specialized in lifecycle accounting and costing technique. The full environmental consequences, and, therefore, costs, arising from production of a product to be taken account across its whole lifecycle. Renewable resources, non-renewable resources, biodiversity, abiotic resources are just some of the indicators that we can calculate for any product or service.
Why do we need natural capital accounting and costing?
Natural Capital accounting and costing can be done at national level or corporate/company level:
For countries, Gross Domestic Product (GDP) tells us only part of our economic story. It hides and excludes services provided by natural capital, and it focuses only on flows of income and output, not stocks of capital, including natural capital, that underpin them.
For companies, the environmental externalities are normally not included in the cost of a products or service and pressures they put on natural capital.
Natural Capital accounting and costing sends a strong signal to businesses and local decision-makers of the importance of monitoring and valuing natural assets.