A Crash Course on Environmental Accounting

Ok…so what exactly is ‘environmental condition’ accounting? How is it different from ‘natural capital’ accounting?

In a nutshell, environmental condition accounting measures and provides a health assessment of environmental assets. For example:

• agricultural soils
• native vegetation and wildlife,
• rivers
• marine ecosystems

Environmental condition accounting helps us measure the actual change in the condition of environmental assets over time through a verified scientific framework. It can show whether resource management activity (and its underlying investment) is having a real and measurable difference on the ground. Without these strong scientific measurements, environmental markets & sustainability claims are not credible. 

Natural capital accounting takes us a step further and underpins the potential economic benefits these assets might provide to society or a business from the associated ecosystem service, such as the improvement of water quality. Basically, natural capital accounting helps us understand the relationship between the condition of the environment and how this can be measured in an economic sense. 

Together, the information produced via environmental condition accounting and natural capital accounting helps to underpin the financial and sustainable gains that positive land and resource management practices can have for a business. It is a way to credibly show investors (or carbon credit buyers) that they are investing in a project that has positive impacts on the environment. 

Accounting For Nature provides an easy-to-understand breakdown of the two terms in their educational video here!

Improvement to the environment = price premiums

Biodiversity has been on people’s lips of late. In late August, the federal government announced they will introduce legislation to support a market for biodiversity, where credits will be awarded to projects that can prove measurable improvements to the environment. 

This is a financial game-changer for businesses and individuals who are restoring local habitats as part of their carbon project. Whilst the legislation is not yet finalised, this new biodiversity market means that a carbon project could produce an extra income stream (on top of their carbon credits) if it shows measurable improvements to their local biodiversity. But how can you measure improvements to my local environment?

That’s where Accounting for Nature comes in

The team at Accounting for Nature has developed a framework that provides an affordable, scientifically robust way of measuring, verifying and certifying changes in the condition of environmental assets on a property or across an entire region.

Armed with these metrics, businesses & individuals can make informed decisions on how they best manage their natural capital. With impact investing significantly on the rise, the Accounting for Nature framework is a source of truth for investors that a potential investment has credible and verified positive environmental impacts.

The AfN Framework was developed in such a way to ensure it complements existing international standards and certification systems, such as those for developing and verifying carbon offset projects, financial accounting, building and assessing impact investment opportunities, pursuing corporate sustainability outcomes and achieving global goals such as the Sustainable Development Goals and Convention for Biological Diversity Post-2020 Biodiversity Framework.

The AfN Framework is also consistent with the environmental condition accounting component of the United Nations Standard for Environmental Economic Accounting (SEEA) and AfN is working to ensure alignment with the Taskforce on Nature-related Financial Disclosures (TNFD).

How can you get the Accounting for Nature tick of approval? 

Basically, when you register under the Accounting for Nature framework you are registering an ‘Environmental Account’. You must complete five steps to have your Environmental Account approved to use the AfN “Certified” (Tier 1) or “Self-verified” (Tier 2) trust mark.

Side Note…

Tier 1 – Certified requires third-party verification by an independent auditor at least once every five years. 

Tier 2 – Self-verified is when Proponents are required to self-verify their own Account against a standardised checklist, which is then confirmed by an AfN Technical Assessment.

…Then comes the five-step certification process.

The AfN certification process can be broken down into 5 stages: 

1. Design
2. Register
3. Build
4. Submit
5. Maintain

To wrap your head around these steps we suggest taking a squiz at AfN’s Quick Guide here which breaks down each step involved in the certification process! 

Let’s chat metrics…how does AfN measure environmental condition via their framework? 

Essentially, the AfN framework consists of rules and processes that uphold the integrity and transparency of an AfN Environmental Account.

Accounting for Nature accredits scientifically robust Methods that provide detailed guidance on the steps you need to follow to make sure you correctly measure environmental condition.

What is an Econd®

An Econd® is an index between 0 and 100, where 100 describes the condition of an environmental asset in its undegraded state (e.g., natural or pre-industrial). The Econd® summarises all the complex scientific information that is required to measure condition, into a single, easy-to-understand metric.

The Econd® is one of the key metrics you are tracking to assess the condition of your environmental asset. Under the AfN framework, you are required to measure progress at least every five years which helps you keep track of the improvements to your Econd®. 

So how does this tie into my carbon project and carbon credits? 

You may have heard the phrase “co-benefits” frequently thrown around in the carbon farming space. Co-benefits are the extra positive economic, environmental, social, or cultural outcomes of a carbon project. Not only can co-benefits benefit your land, farming operation and the wider community, but they can also add extra economic value to a carbon project.

You can track and show your project’s broader environmental progress through an environmental accounting framework – such as the one developed by Accounting for Nature. This will likely increase the value of your carbon credit. 

And watch this space… The Accounting for Nature team is currently working on a verified guideline that will outline how you can link carbon offset units (aka ACCUs) & the Econd® metric making it easier for registered carbon projects to use the Accounting for Nature tick of approval as a proof point that their carbon project is delivering positive environmental outcomes.  

How does this help me? 

Well, potentially many reasons. If your carbon project demonstrates a credible story that involves carbon drawdown as well as improved environmental outcomes for biodiversity this new AfN framework will help you show this to your shareholders and customers. 

On top of this, there is growing evidence of price differentiation for carbon credits from projects that can show additional co-benefits, as investors look to show their commitment to ESG principles. In other words, the extra investment in a carbon project that also complies with an environmental framework may just pay dividends as the world moves increasingly towards valuing natural capital.

Learn more about Accounting for Nature & their framework

To learn more about Accounting for Nature’s framework and how to become certified, head to their website here. Otherwise, we will be hosting an educational webinar on Environmental Accounting with Adrian Ward from Accounting for Nature which you can register for here. 

Ready to find out more?

Explore our range of educational resources in our Carbon Farming Education Hub where we frequently publish educational articles, webinars, and guidebooks. 

When you’re ready to explore the feasibility of undertaking a carbon project on your property, email us at [email protected] or give us a bell at (08) 6835 1140 to be connected with one of our project facilitators.