Strong support for natural capital accounting at Rio+20

Over fifty countries and 86 private companies have joined forces behind the move to factor the value of natural assets like clean air, clean water, forests and other ecosystems into business decision-making and countries systems of national accounting.

Fifty-seven countries and the European Commission are supporting a communiqué that calls on governments, the UN system, international financial institutions and other international organizations to strengthen the implementation of natural capital accounting around the world.

Speaking at an event at the Rio+20 Conference on Sustainable Development, World Bank vice president for Sustainable Development Rachel Kyte said all the ingredients for the implementation of natural capital accounting were now in place, including a UN-recognized methodology, political commitment at the highest level and strong private sector support.

"Rio has provided an opportunity for countries and the private sector to step up their commitment to natural capital accounting and to demonstrate its potential benefits to a global audience," Kyte said. "There is now overwhelming support for implementation across the world. Let's look back in 20 years from now and remember that this was the time when we changed the way we accounted for nature."

Private sector companies and financial institutions - like Wal-Mart, Woolworths Holdings, Unilever, Standard Chartered, and Caisse des Dépôts – some of which have already endorsed initiatives like the finance-led Natural Capital Declaration and the Natural Capital Leadership Compact, have reaffirmed their commitment to collaborate globally to integrate natural capital considerations into their decision-making processes.

At the moment company accounting and calculations of gross domestic product (GDP) are flawed because they fail to show governments, consumers and managers the true costs of their activities, Pavan Sukhdev, a board member of US environmental group Conservation International and a former Deutsche Bank AG banker, told Reuters.

The main reason is that accounting practices fail to account for the creation, use and degradation of air, water, trees, and other "natural assets" in the same way they account for factories, credit and other assets, he said.

Big numbers

In a study of 11 key industry sectors published earlier this year global accounting firm KPMG found external environmental costs have jumped 50 percent from USD566 to USD846 billion over the eight years from 2002 to 2010. This run rate works out to an average doubling of these costs every 14 years.

KPMG calculated that if companies had to pay for the full environmental costs of their production, they would lose, on average, 41 cents for every USD1 in earnings.

Puma, the German athletic footwear and sports equipment company, is attempting to calculate its environmental assets and liabilities, producing  "pro-forma" earnings based on the kind of accounting ideas put forward by Conservation International’s Sukhdev. In 2010 these unofficial accounts would have cut Puma's earnings before interest and taxes (EBIT) by 8 million euros from the officially reported 338 million euros. The figures don't include estimates for suppliers.

"Once you start measuring things you realize something and start managing for it," Puma chief executive Jochen Zeitz told Reuters, adding that adoption of new rules will require help from governments and assurances that other companies and competitors all play by the same rules.