What nature is worth: The rise of natural capital accounting

Can Australia’s natural riches be quantified in economic terms? And if they can, should it prompt Australians to look afresh at the value of the country’s forests, waterways and biodiversity?

These are the questions facing CSIRO researchers in an emerging field within the broader field of natural resource economics, known as natural capital accounting.

A guiding principle of natural capital accounting is that the valuation of nature can help better conserve it. A growing group of environmentalists, economists, policy makers and scientists are pursuing research on the basis that the natural environment can, and should, be considered when making decisions.

The underlying premise is this: there is a benefit to quantifying the inputs from natural capital economically, so that it is expressed alongside and on level terms with other aspects of conventional accounting. In other words, the riches of nature can be measured as assets on a balance sheet, rather than as economic externalities.

Natural capital accounting can help fisheries businesses assess the risks and opportunities associated with the ecosystem assets they rely on. For instance, prawn fisheries rely on healthy prawn-producing habitats, such as seagrass meadows (Image: Peter Southwood).

Beyond the factory floor

Dr Anthony O’Grady is a senior principal scientist and research team leader in the Natural Capital group in CSIRO Land and Water. He works in the stream of natural capital accounting related to private enterprise. Dr O’Grady says that part of his work is helping enterprises calculate and benefit from the natural capital they have relied upon for years, often without realising.

“The simplest analogy is that you think about a factory invests in capital to produce goods and services. Natural capital accounting just expands that production boundary to include the goods and services that ecosystems provide,” said Dr O’Grady.

“A company already understands how it uses its capital to deliver goods and services. So if we can just expand that to include the goods and services that natural capital is providing (basically for free at the moment) and to include how those inputs help their production, then enterprises are in a better position to manage it. And they’re in a better position to communicate that management to their stakeholders.”

Dr O’Grady led a project that focused on primary industries and tested how natural capital accounting can be applied at enterprise scales. The researchers applied two international frameworks: the Natural Capital Protocol and the United Nations System of Environmental-Economic Accounting. They tested these across disparate primary industries, finding that the frameworks can promote standardised reporting across industries. This was part of a broader collaboration between the Federal Government (DAWE), Rural Research and Development Corporations (FWPA, Cotton and FRDC) and industry.

The team looked at why stakeholders would use natural capital accounting, how much primary industries depend on natural capital, and the impacts they have on it.

For example, cotton farming in Australia, unsurprisingly, relies directly on the health of soil and availability and quality of water. Indirectly, it depends on biodiversity to cycle nutrients in the soil, for pollination and pest control, as well as to regulate the climate.

Cotton farming in Australia relies directly on natural capital, including the health of soil and availability and quality of water.

Seeing the forest, and the lake, for the trees

Study co-author, Senior Environmental Scientist Dr Becky Schmidt, led a case study examining the natural capital of Wallis Lake, the hub of a prawn fishing industry on the NSW Mid-North Coast. That study sought to understand the relationship between the prawn habitat and fishing through natural capital accounting. In consultation with stakeholders, the research identified the connection between the biomass of the landed prawns  and the natural stocks of terrestrial and riparian vegetation in the catchment.

A second case study, led by Dr O’Grady, focused on Australia’s forestry sector, holding up natural capital accounting as a lens through which a company might find ways to communicate its overall sustainability to investors and community, and engage with policy makers and regulators.

The forestry study recognised that for landowners, there are a number of barriers to adoption of natural capital accounting, including access to data. But science is granting governments and enterprise access to an increasing flow of environmental data and crafting instruments that measure the natural capital they depend on. CSIRO, with its ubiquitous coverage of scientific research in Australia, is uniquely placed to help build.

A third case study on cotton, was led by CSIRO Land and Water’s Living Landscapes Research Director Libby Pinkard. This study identified 180 activities in the production of irrigated cotton that can either nurture or impact its associated natural assets.

CSIRO researchers looked into natural capital accounting in the Australian forestry sector.

A toolbox for stakeholders

With the help of “proactive” farmers, natural capital accounting is helping to track the changes in stocks and flows of their natural capital and enabling a more holistic picture of their use of natural capital.

The researchers, led by Libby Pinkard, see the potential to expand the scope of natural capital accounting – if stakeholders can see what’s in it for them.

“The stakeholder engagement highlighted that the market drivers for natural capital accounting are currently limited – although increasing rapidly. This results in low motivation for enterprises to develop accounts, particularly if there is an associated cost,” Dr Pinkard said.

“A challenge is to provide tools that are easily accessible to enterprises… that meet the needs of end users. Testing our example accounts with a broad audience was not a part of this project. This should be the focus of further research to ensure that the natural capital accounts that enterprises might develop meet stakeholder needs.”

But if the study identified challenges, it also affirmed the advantages of a common approach across disparate sectors.

The research team found the potential “to scale up” from private enterprise, say, in cotton, to broader regions,  to allow for the needs of different sectors. This could potentially link to government work in environmental-economic accounting under the strategy and action plan for a common national approach. The unifying goal is to quantify the natural stocks that a farmer, fisher or forester relies upon, and make sure they are sustainably managed into the future.