The Evolution of Natural Capital Accounting: 15 min with Rayne van den Berg
Tuesday, March 12, 2024
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March 2024
The Evolution of Natural Capital Accounting: 15 min with Rayne van den Berg
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Join Rayne van den Berg and Ethic's Rebecca Hu as they discuss van den Berg's journey into natural capital accounting, what investors need to know about nature investing now, and what the future of that landscape may hold.

by Rebecca Hu

Rayne van den Berg is the founder of Natcap+, former CFO of Forico, and one of the leaders contributing to the Taskforce for Nature Based Financial Disclosures. She was generous enough to sit down with Ethic’s Rebecca Hu, director of sustainability, to share her journey into the world of natural capital accounting (NCA). Van den Berg chats about her work, which has included groundbreaking initiatives to integrate natural capital considerations into financial decision-making processes. 

In the sustainable investing landscape, few concepts have gained as much traction in recent years as natural capital accounting. The concept merges traditional financial reporting with the valuation of ecosystems and biodiversity, offering a deeper understanding of a company's impact and risk for investors. In this interview, van den Berg unpacks what she thinks investors should know about NCA and looks ahead to the future of nature stewardship and financial reporting.

This interview has been edited for clarity and brevity. 

Rebecca: "I loved meeting you at the MONA Forest Economics Congress and hearing your background and the work you did at Forico. Can you tell us a little bit about your past role and how you got interested in natural capital accounting?" 

Rayne: "I first heard about natural capital accounting (NCA) when I was being interviewed to become Forico’s new CFO about 4 years ago. Until then I had never heard about natural capital, but I do remember the Forico Board encouraging me during my interview to get involved if I was interested and if I had time once my more traditional CFO tasks were complete. 

I was fascinated, and the more I read, the more  intrigued I became. I was really lucky to join the business at a time when there was already a strong sustainability culture and they had been collecting a lot of data and information over the last 7 years but were at a crossroads of trying to work out what the next steps might be, how the data could be used beyond the purposes it was originally being collated for, such as certifications and estate management. There were no accounting standards or guidelines for the finance teams to color within, but as a CFO I really felt that my role was to protect and create value. What was that complete value, and how did it stack up against traditional balance sheets and business valuations? It soon became obvious that we needed to forge ahead instead of waiting for the standards to develop — even if only for better internal decision-making and strategic planning."

Rebecca: "As someone who spends a lot of time looking at building new solutions, I’m fascinated by hearing about the different barriers to having real impact. What are some of the challenges you faced in leading the first natural capital accounting report while at Forico?" 

Rayne: "Looking back, I think one of the biggest roadblocks was the unknown — there were very few published examples in the world but heaps of great thought leadership from the Capitals Coalition, The Economics of Ecosystems and Biodiversity, System of Environmental Economic Accounting, etc. There was a misconception that we needed to report everything perfectly: every ecosystem service including how much honey was harvested, how many fishermen used the stream side reserves for recreation, and so on. Getting started doesn't need to be perfect — just perfect enough to make better decisions today and then better decisions the next day.  Accountants are well aware of the concept of materiality — what information is required for decision makers to make better decisions.  For the investment community, it is the measurement, preservation, and improvement of value — all value, not just short-term financial value but also natural resources and social and human capital value.

So, once we had appropriately scoped our first report for Forico’s six most-material ecosystem services, namely timber/biomass, carbon sequestration, water flows, water quality, habitat provisioning, and carbon emissions from our value chains, we focused our disclosures on these and acknowledged that we could fill in the gaps in future years, and we were able to make progress and focus on what the report might look like. 

I really need to highlight that the report was only possible when all the skills and knowledge across the business were shared between the different professions and departments — the ecologists and accountants needed to find a common language to express value. We also needed to recruit foresters, geospatial experts, and even hydrologists. We were very lucky to have such passionate people in the business who were so proud to talk about their work. Expressing their work using a Natural Capital Report was really to show the value they brought to the estate (Forico), and this story was so powerful internally."

Rebecca: Where do you see the future of natural capital accounting going? What has to happen across the broader ecosystem (regulatory, corporate, investment, etc.) in order to see real change happen? 

Rayne: The momentum in the last 18 months, since Montreal’s COP15, has been remarkable from my perspective. What took the Task Force on Climate-Related Financial Disclosures 10 years to consolidate into International Accounting Standards for climate reporting, which is now being made mandatory by regulators around the world, is now going to take two to three years with the release of TNFD, will broaden the remit of businesses to also consider and mitigate their strategies for nature impacts and dependencies. 

People sometimes forget that there is an “FD” on the end of TCFD and TNFD — which means that eventually all these metrics for tons of carbon, hectares of land use conversion and liters of water, and the associated risks and opportunities, will need to be translated into financial assets or liabilities for decision makers to make better decisions regarding the allocation of resources and capital.

As a great colleague and friend of mine, Pavan Sukhdev, [aka “the yoda of environmental accounting”] says, “Today’s externalities will be tomorrow’s costs and the day after’s losses.” Measuring a business’s most-material natural capital metrics and then understanding what those metrics mean for society and whether their value is accumulating or decretive will be a pivotal step towards living within our planetary boundaries and ensuring long-term sustainability. 

It is exciting and promising to see all the thought leadership in this field aligning towards a central disclosure framework based on the integrated capitals approach and impact valuation.

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Ethic Inc. is a Registered Investment Adviser located in New York, NY. Registration of an investment adviser does not imply any level of skill or training. Information pertaining to Ethic Inc’s registration or to obtain a copy of Ethic Inc.’s current written disclosure statement discussing Ethic Inc.’s business operations, services and fees is available on the SEC’s Investment Adviser Public Information website – or from Ethic Inc. upon written request at Information provided herein is for informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Any subsequent, direct communication by Ethic Inc. with a prospective client shall be conducted by a representative of Ethic Inc. that is either registered or qualifies for an exemption or exclusion from registration in the state where a prospective client resides. Information contained herein may be carefully compiled from third-party sources that Ethic Inc. believes to be reliable, but Ethic Inc. cannot guarantee the accuracy of any third-party information.

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Rebecca Hu is director of Sustainability Product at Ethic. Rebecca has spent the last 7 years building technology products to help navigate the complex world of sustainability. Previously Rebecca studied engineering and studio art at Dartmouth College.

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