Developing the ecological balance sheet for agricultural sustainability

Abstract

Purpose – The purpose of this paper is to suggest a practical means of incorporating ecological capital into the framework of business entities. Investors and shareholders need to be informed of the viability and sustainability of their investments. Ecological (natural) capital risks are becoming more significant. Exposure to material risk from primary industry is a significant factor for primary processing, pharmaceutical, textile and the financial industry. A means of assessing the changes to ecological capital assets and their effect on inflows and outflows of economic benefit is important information for stakeholder communication. Design/methodology/approach – This paper synthesises a body of literature from accounting, ecological economics, ecosystem services, modelling, agriculture and ecology to propose a way to fill current gaps in the capability to account for ecological capital. It develops the idea of the ecological balance sheet (EBS) to enable application of familiar methods of managing built and financial capital to management of ecological assets (ecosystems that provide goods and services). Findings – The EBS is possible, practical and useful. A form of double-entry bookkeeping can be developed to allow accrual accounting principles to be applied to these assets. By using an EBS, an entity can improve its capability to increase inflows and avoid future outflows of economic benefit. Social implications – Although major efforts are under-way around the world to improve business impact on natural resources, these efforts have been unable to satisfactorily help individual businesses elucidate the practical economic and competitive advantages conferred by investment in ecological capital. This work provides a way for businesses to learn about what the impact of changes to ecological assets has on inflows and outflows of economic benefit to their enterprise and how to invest in ecological capital to reduce their enterprise’s material risk and create competitive advantage. Originality/value – No one has synthesised knowledge and practice across these disciplines into a practical approach. This approach is the first demonstration of how ecological assets can be managed in the same way as built capital by using proven practices of accounting.

Adjusted macroeconomic indicators to account for ecosystem degradation: an illustrative example

“…The tracking of patterns of unsustainable use of ecosystem services has been demonstrated at the microeconomic level in physical and monetary terms (Ogilvy 2015;Ogilvy et al 2018). This paper targets the same objective at macroeconomic level by attributing the source of unsustainability, quantifying the producer surplus gained through the unsustainable patterns of use, and thus influencing the direction of future policy actions.…”

A Natural Capital Approach to Agroforestry Decision-Making at the Farm Scale

“…The Wentworth Group's 'Accounting for Nature' method is currently being adapted for use at the farm scale [23] and focuses on the construction of 'asset condition accounts' which provide information about changes to the condition of assets over time, based on measuring biophysical indicators. The second framework proposes an 'ecological balance sheet' (EBS) that enables the application of accrual accounting principles to ecological assets at the farm scale [91]. The advantage of the EBS is that it deliberately incorporates natural capital accounts into the farm's existing accounting system so that financial and environmental performance can be tracked simultaneously.…”

“…Although these frameworks form a sound theoretical foundation for farm-scale natural capital accounting, it is important to recognise that they all rely on evidence-based conceptual models that demonstrate how agricultural systems function. In agriculture, key forms of natural capital may include soils, vegetation, fauna (including livestock and fisheries), and water [91]. Although it is conceptually easy to calculate stocks of the asset (woody vegetation) and determine its condition (i.e., age, structure, species composition, configuration, etc.…”

Integrated Environmental Accounting System Creation

“…Society is becoming increasingly aware of the fact that the success of the activities carried out by the company, largely depends on the activities aimed at the protection and protection of the environment (Lanka, Khadaroo, & Böhm, 2017). Therefore, each business entity should conduct purposeful work and provide information on programs, objectives for environmental protection implemented at the level of the organization, as well as investments in environmental protection measures and costs incurred to reduce the negative impact on the environment (Ogilvy, 2015).…”