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Adapt or Fail: The Two Choices for Business in the Face of Natural Capital Depletion


In the time it has taken you to click on this page, wait for it to load, and read the title (let's say five seconds) fossil fuel companies will have extracted 1,541 tonnes of coal from the ground - the weight of eight blue whales. They will also have removed 657,530 cubic meters of gas - enough to fill Sydney Opera House 25 times.

It is no secret we are using up our planet's natural resources faster than we can replenish them. Staggering recent estimates suggest that by 2030 we will need the equivalent of two planets to sustain the projected 8 billion world population.

The demands our ever expanding and prosperous global population is placing on the earth's natural resources is an issue that has gained increasing social and political traction in the last decades. But the business world is lagging behind. Sustainability issues are largely absent from the boardroom agenda, ignored by most investors and at best are a secondary consideration in major decision-making processes.

This is a danger, because the environment is a business issue. The earth's natural resources underpin all forms of capital, including financial; they are the foundation on which we build our economies and societies. Ultimately, we rely on this finite resource for our very existence.

If action is not taken, this could become the defining 21st century business challenge, wreaking havoc on the world as we know it, possibly even in the next ten years. The future success of industries including tourism, finance and food hang in the balance.

This may sound alarmist, but it is happening already. Unilever , announced in 2013 that the impact of climate change was costing the company €300 million a year as a result of drought and flooding. Looking to the future, a water shortage, for example, would have a 'severe' or 'catastrophic' impact on 40% of Fortune 100 companies, according to a report from The Economics of Ecosystems and Biodiversity.

So what can be done? One step is to put the problem in language that business understands - which means translating it into numbers and costs. The Natural Capital Committee , for example, has developed an accounting framework to put financial value on natural capital so it can be included in long-term decision making.

Moving forward, we can persuade businesses to act by pointing out that accounting for natural capital aligns with good business practice. Corporate governance codes dictate that businesses need to manage for the long-term, so sustainability should be integrated into organisations' long-term risk management processes, and included in management information passed up to the board. Companies must understand their natural resources as much as they do their financial capital to mitigate risk and stop inflating costs.

In the very near future, boards will have to consider natural capital dependencies and impacts as a key element of their corporate strategy and finance. Ultimately, they will be left with two choices: adapt or fail.

Management accountants and other financial professionals, with their forecasting and risk management skills, have a vital role to play in helping companies navigate the challenges and opportunities which natural capital depletion bring.

And although it sounds like a desperate situation, there are opportunities. Those businesses which take steps now to adapt their business models and decision making to include natural capital depletion can enjoy enhanced reputations, risk mitigation and innovation.

HRH The Prince of Wales commented: "We are failing to run the global bank that we call our planet in a competent manner." It's time for businesses and finance professionals to take centre stage in bringing our relationship with natural capital back in to the black.

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