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What Natural Capital disclosure for integrated reporting? 


Synergiz and the African Centre for Technology Studies (ACTS) are pleased to present a new working paper entitled “What Natural Capital disclosure for integrated Reporting?

Integrated Reporting guidelines recently released by the International Integrated Reporting Committee (IIRC) aim to provide corporations with the framework for disclosing the interactions between 6 main types of capital, namely Financial Capital, Manufacturing Capital, Human Capital, Social and Relationship Capital, Intellectual Capital and, Natural Capital. Yet, the potential for integrated reporting to be successful from a Natural Capital perspective depends on the quality of the existing environmental reporting and its comparability with the financial reporting with which it is to be integrated.

Recent evidence suggests that reporting on Natural Capital, as part of sustainability reporting information available to all stakeholders, is falling far short of providing the detailed information needed by stakeholders, including the institutional investment community. There is, for instance, very little evidence of any serious mattention paid to the full set of issues which fall under “Natural Capital”, such as biodiversity and ecosystem services. This is why private reporting on such concerns, among other environmental, social and governance issues, is gaining ground due to the requirements of specific stakeholders (shareholders, financial institutions, potential investors).

To support the information needs of stakeholders from an integrated perspective and in a transparent manner, reporting organisations need to disclose the broader and longer-term social and environmental consequences of their decision-making in a format which is comparable to that of their financial reporting; the latter being typically presented in the form of Financial Statements of Position and Performance (i.e. Balance Sheet and Profit & Loss statement).

In an attempt to find practical solutions to this challenge, this paper argues that a solid accounting foundation is required for Integrated Reporting guidelines to be effective in achieving meaningful accountability to all stakeholders. The authors hence develop the accounting foundations (1) for producing Statements of Position and Performance for Natural Capital and (2) for linking Natural Capital accounting and Financial Capital accounting. A case study is also presented so as to show reporting organisations how to produce Integrated Financial – Natural Capital Statements of Position and Performance.

The results of this research are highly innovative. They constitute the first attempt, from an accounting perspective, to bridge the gaps between financial capital and natural capital performance disclosure and should thus be used to fulfil the aspirations of Integrated Reporting guidelines. This proposed Integrated Financial – Natural Capital Accounting and Reporting Framework sets the foundations for the development of standards linking different types of Natural Capital Standards (GHG Protocol, GRI 4, Water Footprint, forthcoming Natural Capital Protocol) and Financial Capital Accounting Standards (IFRS, GAAP) so that reporting organisations eventually become able to back up their narratives by disclosing their integrated performance in a quantitative manner.

We hope that this paper opens up the debate and look forward to engaging companies, academics and consultants in pilot-testing the proposed Integrated Financial – Natural Capital Accounting and Reporting Framework.

Recommended citation: Houdet, J., Burritt, R., Farrell, k., Martin-Ortega, J., Ramin, K., Spurgeon, J., Atkins, J., Steuerman, D., Jones, M., Maleganos, J., Ding, H., Ochieng, C., Naicker, K., Chikozho, C., Finisdore, J., Sukhdev, P., 2014. What natural capital disclosure for integrated reporting? Designing & modelling an Integrated Financial – Natural Capital Accounting and Reporting Framework. Synergiz – ACTS, Working Paper 2014-01, 62 p.

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