Making Nature Heard
It is time to recognise Nature as an active stakeholder, says Paolo Quattrone.
Increasing pressure to report Environmental, Societal and Governance (ESG) indicators has led to a proliferation of initiatives aimed at defining what needs to be measured, and why, by organisations.
However, although the ESG movement is commendable it generates many issues, not least the impossibility for the corporation to be accountable to each and every demand that requires auditing.
A different approach would be to recognise Nature as stakeholder because, ultimately, it is in the interests of us all today — and future generations — to inhabit a liveable planet. Indeed, there is a growing consensus that Nature must be considered as an active stakeholder because companies are currently not held accountable for the true cost to Nature of their activities, not accountable for the true cost of the production and distribution of their goods and services.
So how exactly could Nature get a seat at the boardroom table? Let’s start with the traditional company income statement. At the moment this is very much drawn up in the interest of just one stakeholder, the shareholder.
But let’s think about how another statement could look, namely a value-added statement for Nature. As with a traditional income statement your starting point is a recording of various kinds of revenues and the calculation of the cost of producing them, excluding the cost of labour. This signals the value produced by the corporation which is then distributed among employees through salaries, through interest payments to banks, through taxes to the state, and through dividends to shareholders.
Nature must be considered as an active stakeholder because companies are currently not held accountable for the true cost to Nature of their activities.
Provision for Nature
The next step is to add a line to the statement detailing a ‘Provision for a fund for Nature’. Note here that we are talking about a ‘provision’ (a commonly used tool in accounting) that is a speculative calculation rather than the recording of a cash outflow.
Indeed, I am commonly asked how you could possibly calculate the ‘value’ of Nature, but I stress again that this is a provision, not a measurement. It is an opportunity for reflecting on what we do, and reflecting on the purpose of business and the impacts we have on Nature. It is about having a conversation about our relationship with Nature, looking into financial reports as if we are looking into a mirror (hence the use of the word ‘speculation’ from the Latin speculum for ‘mirror’), and asking ourselves whether we are doing the right thing.
As we reflect on this, the big question is thus. What exactly, as a firm, are we willing to give up from the different elements of our wealth to regenerate the natural resources we have destroyed?
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What are the prospects for the wider adoption of these ideas? The institutional environment is clearly important here and we are beginning to see some movement from regulatory authorities on this issue, particularly within the EU, and traction within accounting bodies.
The bottom line is that we are all desperate for solutions to the climate crisis, but the window for making changes is shrinking. Rather than simply talking about the environment we need to be doing something right now. But we are also becoming increasingly aware that doing something will cost us too. However, corporations — and stakeholders that rotate around the corporation — have to do something, they have to put their hands in their pockets.
Some companies have already started embracing these ideas. For instance Faith in Nature, a UK cosmetic product company, made a pioneering change in its statutes, allowing itself to appoint a non-executive director on its board 'to speak on behalf of Nature’ in its absence. But looking ahead, processes are needed for explicitly addressing the invisibility of those stakeholders that remain absent and voiceless, such as Nature.
Giving Nature a voice is about wisdom, judgement, process, the future. It is not about measuring the past, it is about discussing what kind of society we want to live in, what kind of planet we want to leave to our children and grandchildren.
And it is up to business managers to open up a space for discussing whether their accounts reflect the collective purpose they want to pursue. And it is also down to policymakers to force them to do so in the public interest.