The EU-funded Transparent Project has published the Natural Capital Management Accounting (NCMA) methodology, providing corporations with practical guidance for environmental profit and loss (EP&L) bookkeeping.
Designed to be in line with the ambition of the EU Green Deal, the methodology was developed by project partners the Value Balancing Alliance, the Capitals Coalition, the World Business Council for Sustainable Development, and the EU Commission’s environment department.
“This publication is the world’s first standardised methodology providing practical application guidance for corporate accountants in charge of establishing a natural capital accounting system,” the Transparent Project stated when releasing the NCMA on Friday.
“The methodology empowers private sector decision-makers with the information necessary to generate long-term value and improve business resilience, enabling a shift towards a more sustainable financial and economic system.”
Applying the NCMA, companies will be able to account for impact drivers on nature and their corresponding positive and negative effects on society, focusing on the flow of changes in ecosystem services from one period to the next.
“Tackling our environmental challenges will require significantly stepping up actions to support the transition to a green and biodiversity-friendly economy,” said Anna Karamat, a policy officer for biodiversity and business at the European Commission.
“The EU Green Deal and the EU 2030 Biodiversity Strategy stress the need to better integrate environmental considerations into public and business decision-making and announce that the Commission will support the development of standardised natural capital accounting practices.”
In the NCMA, impact drivers and accounting approaches are covered for air, land, and water, while a related methodology focusing on the specifics around biodiversity accounting is still being developed.
The methodology developers have aimed to create an accounting framework that can be used widely by accounts in businesses across a number of sectors both in Europe and globally, they said.
Even so, they have also produced sector-specific NCMA guidance for chemicals, apparels, and agrifood, three of the industries with the biggest nature and biodiversity footprints.
“By focusing on impact drivers as the fundamental accounting concept of this methodology, we are approximating complex cause-effect phenomena and the interaction of systems that collectively contribute to the state and condition of the biosphere and ultimately human society,” the NCMA document said.
That approach is consistent with best practice approaches developed by others, such as the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) and the International Union for Conservation of Nature (IUCN), it added.
“The basic hypothesis is that by recognising, measuring, and reducing the impact driver profile of business activities, positive changes to the environment – whether limiting further degradation or regenerating natural systems – will follow along the line of established impact pathways.”
The Transparent Project expects to refine the methodology over time based on user feedback and further analysis.
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