What Natural Capital disclosure for integrated reporting? Designing and modelling an integrated financial - natural capital accounting and reporting framework

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January 2014
Joël Houdet, Roger Burritt, Katharine Farrell, Julia Martin-Ortega, Kurt Ramin, James Spurgeon, Jill Atkins, David Steuerman, Michael Jones, John Maleganos, Helen Ding, Cosmas Ochieng, Kiruben Naicker, Claudious Chikozho, John Finisdore, Pavan Sukhdev
Synergiz, African Centre for Technology Studies (ACTS)

Businesses and government leaders from around the world are increasingly sounding the alarm about the need for effective management of business dependencies and impacts on ecosystems. Though various frameworks and standards have been developed and implemented to improve extra-financial accountability to stakeholders, current sustainability reporting falls short in providing the information needed for accurate investment decision-making. The recent releases of Integrated Reporting (IR) guidelines have been presented as a significant step in the right direction by professionals and academics.

This paper argues that a solid accounting foundation is required to effectively incorporate the broader and longer-term social and environmental consequences of corporate decision-making. To support this argument, this paper first provides a brief review of Natural Capital accounting methods and main reporting practices. Based on this analysis, the paper proposes the key principles and methodological foundations for an Integrated Financial – Natural Capital Accounting and Reporting Framework which can be used to fulfil the aspirations of IR guidelines.

A theoretical case study involving selected natural capital accounts explains: i) the integrated financial - natural capital accounting journal entries, ii) the ensuing Integrated Financial – Natural Capital Statements of Position and Performance; and iii) how to calculate and disclose the natural capital biophysical and externality intensity of financial accounts.