Natural capital depletion is ‘elephant in boardroom’ says CIMA

Business leaders continue to focus on short-term pressures and treat natural resources as if they’re infinite, warns a new report by the Chartered Institute of Management Accountants (CIMA), in collaboration with EY, the International Federation of Accountants (IFAC) and the Natural Capital Coalition.

Accounting for Natural Capital: The Elephant in the Boardroom highlights how, despite its importance, natural capital is largely ignored by investors as boardrooms continue to focus on short-term management decisions and priorities. The true cost to society from the impact of business activity on natural resources is not reflected in corporate accounts, a situation made all the more urgent by the fallacious assumption of infinite resources that currently underpin our economic and financial accounting.

Finance professionals, especially those in leadership roles, have a vital role in helping navigate their organisations through the challenges and opportunities which the depletion of our natural resources will create.

The report outlines the key steps professional accountants and others in financial leadership positions should help their companies to take in order to integrate natural capital considerations into decision making, resource allocation and reporting, and to adapt to growing competition for ever more scarce natural resources.

Organisations that respond swiftly, embracing opportunities to innovate and manage their risks, will thrive. Some of these companies that are taking a proactive approach, including Dow Chemical, Kingfisher and Coca Cola, are highlighted as examples in the report. Organisations that do nothing will suffer from rising input costs, risks to their supply chain and reputational damage.?

Sandra Rapacioli, head of sustainability research and policy, CIMA, said: “Accounting for natural capital issues isn’t easy. But just because it’s hard doesn’t mean it shouldn’t be done. We are calling on finance professionals to take action now and incorporate natural capital considerations into strategic planning and business decisions, before the regulatory axe falls. They have the skills and oversight to show the connections between natural capital, commercial opportunity and business risk, and ultimately, financial performance”.

Fayez Choudhury, ceo, IFAC, added: “Sustainable economies depend on sustainable organisations. Accounting for natural capital must be something the accountancy profession increases its focus on to help organisations respond to the risk posed by climate change and environmental externalities that affect organisational, market, and societal sustainability.”