International accounting organization offers advice on materiality of natural capital

The Association of Chartered Certified Accountants, which describes itself as the global body for professional accountants, has recently issued a briefing paper entitled Identifying natural capital risk and materiality. Materiality is an accounting term essentially describing those issues that are most relevant to an organisation in order to inform decision making and reporting. In other words, is it important to our organization?

The briefing paper seeks to identify those aspects of natural capital that may reasonably be considered important for reflecting the organisation’s economic, environmental and social impacts, or influencing the decisions of stakeholders, and, therefore, potentially merit inclusion in reporting. The paper suggests:

  • The use of tools and guidelines when performing materiality assessments increases the comparability and credibility of a report, providing a systematic way for companies to identify matters to report.
  • Engaging with stakeholders allows companies to assess the topics that are important to the groups they affect, and to tailor their reports accordingly. Being transparent about who was consulted allows readers to judge the range of views represented in the materiality assessment, and thus its completeness.
  • Natural-capital-related issues can affect companies in the short, medium and long term. Therefore, a company taking a longer view when assessing its material issues will be more likely to identify natural capital as a material issue.
  • Natural-capital-related issues can affect companies in the short, medium and long term. Therefore, a company taking a longer view when assessing its material issues will be more likely to identify natural capital as a material issue.
  • The process of identifying natural capital in risk assessments helps identify evolving risk-management issues related to natural capital that could affect an organisation’s operations, allowing the organisation to develop and prepare for such issues, and potentially identify opportunities for product or process development.

The briefing paper recommends that companies should:

  • define materiality in a way suited to the business model
  • be transparent over the materiality process and how external guidelines or tools have been applied
  • link stakeholder engagement processes to the identification of natural capital material issues, and explain how the former inform the risk-assessment processes
  • specify which natural capital issues are material (e.g. biodiversity, water, etc.) to the organisation, and develop goals/strategies for how to manage these
  • report on those natural capital issues that are material to the organisation in more detail
  • connect identified natural capital material issues to their long-term risk assessment process and, if material,
  • explicitly incorporate natural capital risk analysis into relevant governance structures.

The 6 page briefing paper is available at http://www.accaglobal.com/content/dam/acca/global/PDF-technical/sustainability-reporting/natural-capital-materiality-paper.pdf A summary from ACCA is available at http://www.accaglobal.com/gb/en/discover/news/2013/12/fauna-kpmg.html?from=XX

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