Accounting and Accountability for No Net Loss of Biodiversity
22 Pages Posted: 26 Sep 2022 Last revised: 27 Oct 2022
Date Written: September 26, 2022
The fundamental role of biodiversity in the supply of ecosystem goods and services is now recognised as a significant risk to global financial stability. There are increasing expectations that corporations take greater responsibility for their impacts on biodiversity, evidenced by a growing number of commitments to no net loss of biodiversity. However, no net loss policies have been criticised for having vague and/or unquantifiable baselines, reference scenarios or targets and therefore run the risk of being labelled as greenwashing. A challenge then is to explore how we make organisations ‘accountable’ for their public commitments on biodiversity impacts. This paper addresses the question of whether existing accounting standards provide a sufficient framework for accounting for the loss of biodiversity in the supply chain of a company.
By developing a simple illustrative scenario, we demonstrate that companies can provide the empirical evidence needed to account for changes to ecosystem assets of entities in their supply chain and any impacts to biodiversity related to these changes. The cost to restore the ecosystem assets can then be financially quantified. If a reporting organisation has made a public declaration of a policy or commitment to no net loss of biodiversity, such that a valid expectation has been created that the organisation will discharge their responsibilities, the loss of biodiversity and resultant restoration costs give rise to a constructive obligation. Our scenario makes it clear that such commitments can, and should be reported in both the balance sheet and statement of changes in equity. By disclosing the implications of their environmental commitments in the financial statements, companies can obtain a competitive advantage against others who make claims solely for greenwashing purposes. More importantly, companies that make their environmental commitment clear in their financial statements demonstrate their environmental accountability to both existing and future investors.
Keywords: Biodiversity, no net loss, accounting and accountability
JEL Classification: M41
Suggested Citation: Suggested Citation