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Natura: Brazil’s integrated reporting pioneers

Author: ICAEW Insights

Published: 02 Dec 2022

The Brazilian giant, the first publicly listed company to become a B Corp, has been pushing an integrated approach for 30 years. Having taken this further still, it was highly commended at this year’s Finance for the Future Awards.

Natura’s integrated approach has its origin in the 1990s. The brand incorporated ingredients from Brazilian rainforests into the manufacture of its products, with the protection of the Amazon Rainforest at the heart of its project. 

Natura developed a business model that sought to value the economy of the rainforest, its biodiversity and its communities. In 2007 it became carbon neutral, and it launched the Natura Amazon Program in 2011. Since then, Natura has driven a business volume of over 2bn reais in the region, helping to conserve more than two million hectares. Natura’s socio-biodiversity value chain currently has 8,155 families in 40 communities.

Natura’s Integrated Profit and Loss (IP&L) methodology collects data, identifies impacts, attributes societal value and enables better business decision-making, taking into account the natural, human and social categories. 

The IP&L results are directly comparable with its financial results, which helps integrated management as well as risk management and reporting. IP&L was created in response to the need to drive business and sustainability decisions based on impact data.

The biggest challenges in implementing integrated reporting, according to the company, are ensuring consistency across management, strategic reporting and information. Harmonisation between the various existing international ESG standards was also challenging.

Between 2014 and 2016, Natura began measuring its environmental footprint using Environmental Profit and Loss (EP&L), which quantifies the costs and environmental benefits of its value chain following the standard of the Natural Capital Protocol led by Capitals Coalition and the World Business Council for Sustainable Development (WBCSD). 

From 2018, the Brazilian multinational started the development of the Social Profit and Loss (SP&L) to calculate its contributions in the human and social spheres. 

Natura has developed 40 sustainability key performance indicators (KPI) associated with monitoring Commitment to Life achievements – Natura & Co Group’s Sustainability Vision 2030. The KPIs manage performance and track the company’s sustainability strategy in conjunction with strategic planning. 

Natura is a signatory to the Ellen MacArthur Foundation, which aims to build circular economies. The company has also developed Sustainability-Linked Bonds, which aim to reduce greenhouse gas emissions and increase the use of recycled plastic packaging. Most of these sustainability KPIs are outputs measured, in addition to other business indicators, in the IP&L model.

The group has also aligned remuneration with its ESG goals. Since 2009, socio-environmental factors have been included in Natura’s performance-management model for employees and executive remuneration. 

Natura’s IP&L measures its non-financial impacts and allows the brand to make more informed business decisions. The judges were also inspired by the company’s overall approach and the impact Natura aims to achieve in the market. 

Thais Pacheco Espildora, ESG Strategy and Governance for Natura, says: “We firmly believe that companies’ impact on the world and society needs to be accounted for in all its dimensions, and this estimate must be at the basis of a transition plan towards a regenerative economy.”

The chief financial officer and finance team were pivotal in the establishment and monitoring of the integrated approach. The finance team has a co-leadership role together with the sustainability team in the construction of valuation criteria, ensuring coherence and reliability. In addition, the finance team supports the inclusion and analysis of priority IP&L key performance indicators in management and strategic planning to ensure and influence an integrated analysis and decision-making.

Natura’s integrated approach provides a holistic view of generated value, enabling assessment and comparison of the value created for the business (P&L) and the society (IP&L). Although P&L statements are published separately from the IP&L, they are structured in the same format so that investors and other stakeholders can see which activity has which impact, as well as linking the financial statements to a range of non-financial metrics, such as carbon emissions and offsets and supply chain indicators.

Impacts on the people that live in the rainforest are already visible. Partnerships with extractive communities in the Amazon who supply vegetable raw materials have a return to society of 8.6 times the amount invested creating high social capital, thanks to the support of Natura in infrastructure for the cooperatives and local development in partnership with local institutions, the company says.

Espildora says: “To achieve a new model of management and reporting, we must act together. That is why we are making the IP&L methodology available to other companies and organisations so that it can be discussed, improved and implemented collaboratively. And the FFF’s recognition helps us to accelerate this journey, giving more visibility to our impact measurement methodology and amplifying the dialogue.”

Founded in 1969, Natura is now part of Natura & Co group which also owns Avon, The Body Shop and Aesop. In 2014, Natura, which operates in 11 countries, became the world’s first publicly traded company to receive B Corp certification. It was also the first Brazilian company to be awarded the Leaping Bunny seal, granted by Cruelty Free International in 2018. 

“We have started using IP&L results as a tool for our business strategy and quarterly performance, which helps us to develop solutions to manage our impact – maximising the positive impacts and mitigating the negative ones,” Espildora says. “We also plan to expand the model and extend it to the other brands within the Natura & Co Group.”

Natura said the process has had a positive effect on greater integration of governance and strategic planning. All the business’ units are held accountable not only for achieving positive economic outcomes, but also for social and environmental outcomes. The integrated representation of these outcomes allows trade-offs to be evaluated and prioritised, embedding the implementation of ESG policies into the conventional business goals.

Finance for the Future

The 2023 awards are open for entries.

Finance for the Future Awards logo

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