Accounting for natural capital
The Philippines is rich in natural resources, with a bounty of minerals, cropland, timber, and coastal and marine resources estimated at 19% of the nation’s wealth.
In the Roadmap to Institutionalize Natural Capital Accounting in the Philippines, natural capital is defined as the stock of renewable and non-renewable resources (e.g., plants, animals, air, water, soils, and minerals) that provide a flow of benefits to people. It also includes the ecosystem services often “invisible” to most people, such as air and water filtration, flood protection, carbon sequestration, pollination of crops, and habitats for wildlife.
In business, financial and management accounting guide decision-makers in formulating policies and actions based on informed judgment. These fields of accounting have attained a level of sophistication that the impact of business decisions on the company’s profitability and shareholders’ wealth can be simulated using financial and statistical tools.
Currently, there is no time-tested accounting system for the country’s natural capital. How do we measure the impact of converting agricultural lands into subdivisions? Is there a standard to follow in assessing the risks and benefits of a project that impacts our natural capital? While some professionals have the expertise in preparing environmental impact assessments, accounting standards must be followed in measuring renewable and non-renewable resources and their inflows and outflows, if any.
Through the efforts of the National Economic Development Authority, Philippine Statistics Authority, and the Department of Environment and Natural Resources, we now have the Roadmap to Institutionalize Natural Capital Accounting (NCA) in the Philippines that provides strategic guidance on the national implementation of NCA from 2022 to 2040.
Under the Roadmap, the statistical community steers the development of tools to measure natural capital using agreed accounting structures, rules, classifications, and definitions. Integrating ecosystem accounts with national accounts enables the former to expose critical connections between the pillars of sustainability.
Natural capital accounting (NCA) is a useful tool to measure the changes in the stock of natural capital and integrate the value of ecosystem services into accounting and reporting systems for a given region or ecosystem. NCA uses an accounting approach that integrates, using a coherent framework, various economic, socio-demographic, and environmental data into aggregates and indicators. NCA provides accounting frameworks to “put together” dispersed environmental data and integrate it with conventional income accounts.
With a standardized natural capital accounting system, decision-making on natural capital will no longer be a hit-and-miss affair. Let us hope that the NCA will soon provide good insights.
How much do you think is the value of our natural capital? We have been loud and proud of our rich natural resources. Once we start seeing the figures, we hope we will not be waking up to a shocking reality.