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Yorkshire Water develops environmental profit and loss account

Yorkshire Water has recently worked with Trucost to implement an environmental profit and loss account (EP&L) in an effort to integrate sustainability into its core business strategy.

"We want staff, customers and people in our supply chain to have a clearer understanding of the true cost of water," says Simon Barnes, Yorkshire Water's programme director. "We're in the early days of the journey, but it's a useful tool that we can use to stimulate conversation."

The test, he says, will be whether Yorkshire Water can inspire others in its supply chain to try something similar. It took his team a year to agree to try this, he says, adding: "There are all sorts of reasons why you don't do it – it's not quite the right time, we don't have the right data – but if you keep waiting you will never make a change."

Investors have a significant role to play in pushing natural capital accounting up the boardroom agenda, says Steve Lang of EY, author of 'Accounting for natural capital: the elephant in the boardroom'.

But he is not optimistic it will become widespread soon. "The bleaker side of me says it will take a major catastrophe, a major collapse in crop yield or fish stocks, that really draws attention to it at a broader scale than is currently the case," he says.

Hurdles to implementation include the fact that many businesses have outsourced their primary production and do not know how dependent they are on natural resources, said Richard Mattison, chief executive of Trucost, an environmental data business.

"The challenge is getting that information back from the companies in your supply chain to provide good information on risk for shareholders and consumers," he says. "Then, when you have that data, how do you convert it into meaningful measures of risk and opportunity? That's where natural capital accounting comes in."

Converting environmental measures into financial metrics makes it possible to compare the business risk created by generating extra carbon emissions versus that of releasing mercury into a waterway. It expresses these risks in terms business leaders understand, said Sandra Rapacioli, head of sustainability research and policy at the Chartered Institute of Management Accountants and another of the report's authors.

"It's the only tool, but it has disadvantages because there's no standard methodology for valuing natural capital, so it's easy to pick it to pieces." That means a determined chief executive could usually find reasons to throw the figures out, she says.

Barnes says: "I'm sure someone could look at the EP&L I'm using right now and say 'that's not accurate to that decimal point', but it's still helping us to focus on our business strategy and our long-term direction of travel."

Rapacioli suggests using natural capital accounting alongside other qualitative and quantitative measures, agrees. "The most important thing is that you look at these risks rather than ignoring them," she says.

Source: The Guardian
Photo: Yogendra174

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