GLOBE UK held their first GLOBE UK Natural Capital Legislation Conference this week. Daija Angeli, NCI project officer, went to the House of Commons to attend the event.
Is Natural Capital Accounting (NCA) a political imperative? This was the central question of the first 1st GLOBE UK Natural Capital Legislation Conference on 1st April in the House of Commons. The conference set out to improve understanding of the importance the evaluation of natural capital and valuation methods and among legislators and parliamentarians; it also set out to establish and strengthen links between legislators, technical experts and business leaders in support of natural capital accounting in the UK.
Graham Stuart MP, chairman of the board of GLOBE international, opened the event stating that natural capital is a term that is still unknown to many members of the parliament. He cited what a colleague had said in advance of a debate on natural capital in England and Wales last October, “In eight years in this place, I have never looked at the title of the debate and not known what it was about—until now. Well done, Graham, you’ve got a debate I don’t understand.” He highlighted the need for a language that can be easily understood outside of the group of the usual suspects.
In the opening presentation outlining the economics of natural capital, Professor Paul Ekins (UCL) stated that taking nature’s services for granted is increasingly untenable. While accounting for natural capital is a complicated and expensive endeavour, it helps to make informed decisions on the use and management of scarce natural resources. The competition between ecosystem functions is becoming acute and global. To help with informed choices about which functions of natural capital we use, he advocated incorporating NCA on three levels; national, business, and the customer. Prof Ekins also presented the difficulties of valuing the present flow of benefits from natural capital. The interaction between natural capital with other forms of capital (financial, manufactured, social and human) presents real challenges. As an example he pointed to the value of the soil in the production of agricultural crops. While there is a market price for agricultural crops, they are the outcome of a complex interaction including human labour, machinery, fertilizers, climate factors, etc. Soil is taken for granted; its contribution is invisible. Prof Ekins concluded that valuing natural capital alone is not sufficient to safeguard our environment; we need to protect our critical natural capital through the precautionary principle, safe minimum standards, and sustainability considerations.
Lord Deben emphasized that we need to value natural capital because we measure everything else that contributes to our economy. He highlighted the need to think beyond the current value of natural capital and consider the option value, the value derived from potential future uses of natural resources. Introducing GLOBE International’s work such as the Globe International Natural Capital Legislation study, he pointed to important lessons from countries that are usually not major players on the world’s stage; at the same time, he called for the UK to play a leadership role in NCA. He urged for a language easily accessible to legislators to ensure they engage with the concept of natural capital.
The following two presentations summarised the current state of NCA on a national level. Joe Grice from the Office of National Statistics (ONS) presented the roadmap to national NCA (pdf 786Kb). He explained that establishing environmental accounts in line with the international SEEA guidelines presents many conceptual and practical difficulties and fully integrating these into the national accounts will take until 2020. More immediately, the ONS will produce (1) accounts using existing data, (2) accounts for cross cutting areas such as land use/cover, water quality/supply, carbon and soil and (3) habitat accounts based on the broad habitats of the UK National Ecosystem Assessment. Some of these outputs will be available at the end of April.
Avoiding the controversies and risks of monetization, Scotland has developed the Scottish Natural Capital Asset Index. Roddy Faily from Scottish Natural Heritage presented this detailed attempt to measure annual changes in Scotland’s natural capital based on an evaluation of ecosystem service potential. While this comprehensive index met a range of important criteria and can be related to other accounts, he concluded that the potential of an index foregoing monetary valuation to influence decision making was limited: “in our capitalist society, money is what counts”.
Key note speaker Professor Dieter Helm, chair of the Natural Capital Committee (NCC) declared that we need to view environment as central to the economy, not separate from it. Damages to natural capital cannot be completely avoided; we need to understand these damages, offset them, and ensure that the aggregate of natural capital does not decline. The latter, leaving the environment in a better state for the next generation, is one of the aims of the Natural Environment White Paper, and Professor Helm said that some constraints on the use of our renewable natural capital will need to be put in place to ensure a continuous flow of benefits. In addition, he called for risk registers to make sure we account for thresholds and a long term plan to improve the state of natural capital to continue to deliver well-being and economic growth.
Businesses increasingly understand their dependence on natural capital, said Ian Cheshire, Group Chief Executive of Kingfisher and Chair of the Ecosystem Markets Taskforce. Some companies are now taking a longer term perspective and new business models like the circular economy are emerging. However, while there are incentives for businesses to take a ‘net positive approach’ when it comes to the natural capital their long term existence depends on, investors, consumers and legislation are critical for the idea to gain traction. He called for a clear legislative framework to create a ‘level playing field’. Usable and affordable accounting systems will also be crucial to achieve business engagement.
Responding to the key note addresses, Caroline Spelman MP expressed her excitement about the academic rigour and business engagement. She noted that at the same time, the concept still needed to be socialised. A lack of understanding paired with a lack of ambition in government still leads to missed opportunities such as the failing of a green CAP reform. Barry Gardiner MP noted that the short term thinking of electorates gets in the way of considering natural capital in decision making, and subsidies are still often incentivizing behaviour that harms natural capital. Laura Sandys MP highlighted that conflicts in the 21st century will primarily occur around resources, rather than ideology. In the international context, we need to think of natural capital as crucial in terms of conflict prevention rather than a ‘nice to have’.
Oliver Letwin MP, Minister for Government Policy, pointed out the importance of the work of the NCC and the UKNEA in showing how important ecosystems are in reducing economic costs and providing economic benefits. Rather than a pursuit by dreamy environmentalists, the protection of our natural capital is a matter for the ‘grown-ups’ making decisions based on economic rationales.
Following the keynote speeches, Joan Walley MP and Zac Goldsmith MP, both members of the Environmental Audit Committee, and Sir Malcom Bruce MP, chair of the International Development Select Committee discussed the role of parliament in NCA. Joan Walley MP noted that the question should not be if but how we implement a legislation to account for natural capital. Due to the complexity of ecosystems, Sir Malcom Bruce MP, called for a general framework, adaptive governance enabling local approaches. Zac Goldsmith MP noted that while the UK was leading in developing the appropriate tools, there was a big gap with regards to the implementation of NCA. He suggested that the chancellor should be required to report regularly to Parliament on the state of natural capital.
In the final part of the event Steve Waygood, Chief Responsible Investment Officer from Aviva Investors and Andrew Mitchell, Founder and Executive Director of the Global Canopy Programme offered a business perspective on NCA. Both Ian Cheshire and Sarah Nolleth, Director of The Prince’s Accounting for Sustainability Project, had noted an increased interest in NCA in the business community in earlier speeches. Steve Waygood said that while there are now examples of profit and loss reporting on natural capital, the costs of these externalities do not appear in the companies’ accounts. He called for a requirement for all companies to publish Integrated Sustainability Reports by 2030. However, he highlighted that so far, the financial sector still has to catch up; investment consultants, asset owners and pension investors need to press for integrating environmental and social issues in business practices. While some early adopters in the financial sector have signed the Natural Capital Declaration, Andrew Mitchell from the Global Canopy Programme seconded that the financial sector lags when it comes to NCA. Referring to natural capital and the financial sector as the bride and groom of global change, he called for government legislation to the rules of this marriage.
Many of the speakers voiced the need for legislation around natural capital accounting. Only this will ensure that the natural environment is weighted adequately in decision making. Finding the right language to engage policy makers in the process will be crucial.
Read more about GLOBE’s work on natural capital.