The Cost of Natural Capital

This year’s 2013 State of Green Business report from GreenBiz is once again filled with important information for U.S. companies to review. From integrated sustainability/financial reporting, to technology’s impact on sustainability, to the burgeoning import of the sharing economy, the report discusses a number of sustainable topics and their impacts on business.

Perhaps one of the biggest takeaways of the 2013 State of Green Business report is the trend for businesses to account for natural capital. The report makes the point that “companies will be under increasing pressure to measure, if not manage, their impact on natural capital.” (Many U.S. firms already understand the importance of natural capital: Producers of food products have to pay close attention to crops, and paper manufacturers sometimes buy their own land to manage the growth of trees.) Beyond this, the report contends that companies will begin to be pressured to report financially on the impact to natural capital, including greenhouse gases emitted into the atmosphere. (Note: One of the authors is Dr. Richard Mattison from Trucost, which is affiliated with the Carbon Disclosure Project.) This pressure is coming not only from political sources, but also from a number of global banks that will start assessing environmental impact of financial decisions. As noted in the report, it is not clear if this refers to decisions regarding issuing loans (or charging a higher interest rate), but this could be one outcome of the assessment.

While this trend has gained momentum internationally, the authors report less activity in the United States. The U.S. has not enacted carbon-trading legislation like the European Union, so many U.S. firms feel little pressure to account for or value CO2. The few domestic examples given are all specifically focused commitments, or those “repackaged” from previous environmental commitments. (Even Disney, which committed to quantifying most ecosystem benefits, specifically excluded carbon.)

The question remains whether this may change soon. California has started selling carbon allowances just recently, and in his State of the Union address, President Obama outlined his desire to take action on climate change – with or without Congress. Businesses here should be considering the impact of potential climate change legislation/regulation, which may eventually require an analysis of the natural capital cost a business incurs.