Valuing Nature - Seeing the Ecological Assets through the Trees
Is it possible to attach a monetary value to something as seemingly priceless as Nature? For Tasmanian forestry management and timber plantation company Forico, the answer is yes.
By Susan Muldowney
How did a Tasmanian asset manager become a global frontrunner in natural capital reporting? Forico’s pioneering tale is as inspiring as it is compelling.
When Tasmania’s largest private forest and land manager Forico set to work on its inaugural Natural Capital Report it never expected to become a thought leader for environmental stewardship and sustainability reporting across the globe.
But Forico’s 2020 and 2021 Natural Capital Reports use an innovative accounting approach that puts a dollar value on ecological assets through the common language of financial reporting. They measure both operational impacts, as well as Forico’s ability to preserve and enhance the natural environment across more than 174,000 hectares of Tasmania’s landscape – 77,000 hectares of which are natural forest that Forico manages for biodiversity conservation purposes.
Forico’s Natural Capital Reports consider factors such as carbon sequestration, habitat provision, water filtration, sediment control and biodiversity, with the 2021 report estimating its net natural capital value at AUD 3.39 billion, split between AUD 463 million to business and AUD 2.92 billion to society.
The company’s CFO Rayne van den Berg tells us about its efforts to measure, value and disclose natural capital impact and how its reporting is shaping up for the future.
Forico’s Natural Capital Reports have set the benchmark for Australia in environmental stewardship and the measurement of biodiversity impact. This kind of reporting is in its infancy – what prompted Forico to calculate the natural value of its estate?
Forico was formed after the receivership of Tasmanian forestry enterprise Gunns and, when fund manager New Forests bought the assets on behalf of global investors, there was a really strong mandate that the natural forest areas would not be harvested for commercial purposes.
We had already been collecting data about the extent and condition across the estate to form a management program to improve the condition of natural forest areas. Natural capital reporting was about taking all that data that had traditionally been used for other purposes and turning it into a story about value to present to our stakeholders.
The end game is about creating a biodiversity market. Rising land values and other pressures we're seeing around land-use competition are putting pressure upon investors to divest those properties or use them for alternative uses, unless we can get some kind of revenue stream on them to ensure their conservation. We really would like to see a way for financial markets to reward responsible investment decisions.
What was your starting point for reporting? How did you choose your methodology and secure buy-in from stakeholders?
It's one thing to collect all this data, but we also had the unwavering support from our investors and board to let us investigate natural capital methodologies without expecting a commercial reward up front. We also needed to engage with lots of people across the business, like ecologists and foresters, to develop a common language around natural value. Part of our role in finance was then to craft that into a story, just like you would within a traditional annual report.
In terms of methodologies, we started with the System for Environmental Economic Accounting (SEEA), which is the UN’s framework for reporting environmental and ecological values, but whilst it is impressive in its comprehensiveness for measuring extent and condition, we thought it was more of an economic approach better suited to government and organisations who prepare national accounts.
I was really drawn to the Natural Capital Protocol, which is developed by the Capitals Coalition [a not-for-profit group that develops and advances the understanding of natural, social, human and produced capitals]. Its framework is consistent with what I know as a professional accountant around concepts like materiality and business decision-making.
The first report took us about 12 months to complete, because we already had a lot of information on hand. The second one was a lot quicker – as we’d already worked out the methodologies we would apply.
Forico’s Natural Capital Reports have captured global attention – the United Nations highlighted the organisation as a case study for what can be achieved in measuring biodiversity impact. Why the global attention?
We’re this little asset manager down in Tasmania and all of a sudden people around the world are really interested in our report. But what makes it quite unique is that not only have we measured natural capital in tonnes, litres and hectares, but we've converted that into a common monetary language and then presented it like a financial report with a balance sheet and ‘P+L’.
The second point of interest is that we had assurance provided by KPMG in Melbourne, which gave more credibility to what we were doing. If we were going to go public with a report like this, the whole company – including our directors and our investors – wanted to be confident that it made sense and had a layer professional of rigour over it to give our readers confidence.
What are the challenges around biodiversity reporting?
Businesses should have a pretty clear understanding of what their impacts are on biodiversity, especially land managers. Where it gets more complicated is determining how it flows through supply chains. But I don't think we shouldn't do it just because it's difficult. A decade ago, people said that accounting for carbon was going be tough, but we've been able to work it out and create a market for carbon credits.
The difference I see with Nature, though, is it's not just about additionality. Yes, you can restore an area to get a better outcome, but equally, once it's lost, it's lost. So, there needs to be a focus on preservation of what we’ve already got as part of that reporting.
How has natural capital reporting changed your operations and the way that Forico assesses its performance?
This is where it gets exciting for me because it's reframed our idea of who we are. We’re land and ecosystem custodians. Timber is a service that we are taking off the estate, but there's a larger obligation around carbon sequestration, water filtration and biodiversity.
A more tangible operational example is a fauna study that we’ve commissioned. We want to understand how things like coupe size [areas of forest designated for timber harvesting], adjacency to natural forest areas, plantation species selection and age of harvest change biodiversity over time.
The Taskforce on Nature-related Financial Disclosures (TNFD) released the first beta version of its prototype risk management and opportunity disclosure framework in March this year. Forico has been invited to participate in its pilot testing – what will this involve?
The TNFD, at its heart, is about giving investors the information they need to make decisions. As far as the pilot process goes, we’re still waiting on feedback for what it will involve, but there’s a lot of smart people wanting to do great things in this space.
I also think there are some great learnings from the framework of the TCFD [Task Force on Climate-Related Financial Disclosures]. The intention is that the TNFD framework will progress faster than the TCFD, because the idea of looking at risks and opportunities around climate change can be extended to nature.
What’s next for Forico’s natural capital reporting?
We’ll be able to report on fauna soon, and we plan to look at soil health and productivity in future reports. We’re also committed to doing a social and human capital report to round out our businesses’ contribution to the communities in which we operate in terms of jobs, support, volunteer time and training.
Ultimately, we want to give Nature true value in a financial market – in the same way that people are paying for better carbon outcomes, we see that people will eventually want to have better natural capital and biodiversity outcomes.
There are already some good examples of that in Australia. Queensland’s Land Restoration Fund, for instance, is attaching natural capital biodiversity outcomes or other social co-benefits to carbon. They’re saying, you can have carbon credits on that project, but we'll also give you additional premium on that carbon if you're doing a special indigenous project or you’re preventing runoff into the Barrier Reef.
These co-benefits will become more important for those organisations sourcing carbon credits to understand the full impact of their investment.
Do you have any advice for companies currently considering how they measure their biodiversity impact?
Begin with the information that is most relevant to your organisation and stakeholders.
We limited our first reports to a handful of our most material ecosystems, such as biomass, carbon sequestration, water flow, sediment control and habitat, and started there. Don’t let the perfect get in the way of the good. Just get started and change the conversation about valuing Nature
Natural capital is vital for the success of many Australian industries. Speak to a Westpac Sustainable Finance expert to explore how nature-based financial solutions can help your organisation achieve its sustainability goals.
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