Giving nature a mandatory line in financial reports could help hold businesses accountable.
Nature is a key stakeholder in our planet’s future, yet it has no voice.
Researchers want to change this by giving nature a mandatory line in financial reports.
A new paper by accounting professors at Alliance Manchester Business School and Bocconi University, Milan, calls for businesses to recognise how nature is affected by their operations.
The report by professors Paolo Quattrone and Ariela Caglio recommends completely rethinking corporate governance, accounting and auditing so nature can be accounted for.
COP15’s landmark biodiversity deal is a promising step in the right direction for protecting our lands and seas. This could provide a practical way for businesses to join in putting the plans into action.
How can accountants take nature into account?
The current accounting system has its roots in the first industrial revolution, explains Quattrone. It was codified by Adam Smith, who reduced value to utility, and in turn market price.
This system “recognises only production and assets and not how nature is affected - usually damaged, destroyed or exploited - by this production.”
To rectify this, professors Quattrone and Caglio call for adding a line for nature in the current accounting and auditing system.
How would accounting for nature protect it?
By putting nature on the balance sheet, companies would have to account for it in their financial reports and devise ways to repair, and even improve it, the researchers argue.
“The addition of a Provision for Nature in the Value-Added for Nature Income Statement (VAN) would force stakeholders to pay serious attention to how we relate our corporate activity to nature,” they say. “The VAN allows stakeholders to see and measure important things that are not currently there.”
This would reduce reliance on regulators and independent auditors to assess businesses’ impact on nature. It would also make nature a visible key stakeholder with a voice and value, the report suggests, compelling businesses to move towards becoming net positive.
The researchers’ long term hope is that governments, central banks and regulators could legislate to make this compulsory. In the meantime, they urge corporations and organisations to start adding nature in their financial reports voluntarily and to set up bonds for nature’s repair and revival.
“The approach would encourage firms to consciously consider the means and not just the ends,” says Caglio. “Such a system would empower accountants to become one of the biggest advocates and drivers for biodiversity safeguarding, repair and revival.
“Accounting and accountants can save the world.”