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Forico: a blueprint for natural capital reporting

Author: ICAEW Insights

Published: 24 Nov 2022

There is as yet no set of accounting standards for natural capital reporting. So Forico’s finance team figured out their own approach, using accounting principles and guidance from the Capitals Coalition and others – winning a Finance for the Future Award for its bold, innovative and rigorous approach.

Rayne van den Berg was not long into her role at Forico when she was handed a wealth of somewhat raw data on its natural capital. When she joined as its CFO in 2019, the company – the largest plantation forestry company in Tasmania, Australia – had been collecting natural capital data for a while, but it didn’t quite know what to do with it.

“My board said to me: ‘We’re doing this little project, you can have a little play if you’d like and see where it goes.’ I took that as a challenge,” she says. “What we decided to do was to use that data and my skills as an accountant to turn those metrics into something that looked and felt like a financial report. Essentially giving nature its own balance sheet.”

The data had been collated by ecologists, economists, foresters and scientists and had, until that point, been collected and presented in a more academic style. However, it needed to resonate with Forico’s decision makers from a business perspective. “It made sense to put it in the form and structure of something that’s really comfortable and familiar to them, which is a balance sheet, profit and loss and notes, and then to have the assurance over the top of it.”

But preparing financial statements is governed and structured by regulatory requirements and frameworks, alongside years of best practice. Natural capital reporting has no firm standards to follow as yet. Van den Berg and her team had to develop a new template, which is not necessarily a comfortable space for an accountant to operate in. However, they decided to embrace that opportunity for innovation. 

“The thinking was: we’ll be really transparent and clear upfront that we’re being experimental and innovative, and people can make their own assessment of the values. Then, when the standards are established, we will be positioned to align our natural capital balance sheet with our financial balance sheet, do eliminations and get a consolidated picture of integrated value.”

The gamble paid off: Forico’s Natural Capital Report has become a potential blueprint for how to do it right. It is now about to launch its third Natural Capital Report, alongside its financial report. “It’s pretty exciting, because we’re starting to see trends now and are able to show year-on-year impact and change as well as the impact on nature of some of our decision making.”

Getting started with natural capital reporting involved paring down the metrics to focus on materiality. The team picked out the most material metrics, paring it down to six: biomass, carbon sequestration, water flows, sediment control, vegetation ecosystems and carbon emissions. This was a starting point, the plan is to expand the scope once data on other factors is developed further.

“That was probably the first ‘aha’ moment, because everyone thought we had to have everything before we could start reporting on it,” Van den Berg says. “The second one was just how important the disclosures were. Being able to really articulate the basis of preparation was really important.”

Once these six material elements were identified, the team worked on putting together a natural capital balance sheet and an environmental profit and loss to make up the heart of the Natural Capital Report. But as this work was based on nothing that came before it, solid assurance was essential to add credibility. Forico approached KPMG Melbourne to provide limited public assurance on the natural capital work. KPMG wanted to see transparency around why the team picked certain metrics, where the data came from and that the results were replicable.

“That structure and assurance process really added to the quality at the end, and our own confidence in our reporting systems. It’s only when you have to explain to someone else why you’ve presented something a certain way that it becomes solidified. We had an amazing partnership with them.” 

Initially, it was about starting a conversation with our internal and external stakeholders. And it did – Van den Berg says she has had many conversations with people and organisations that she would never get a chance to speak to without the Natural Capital Report. It has also brought a lot of attention to the company. Its work on the Natural Capital Report received the award for Embedding and Integrated Approach (non-listed companies) at this year’s Finance for the Future awards. 

More exciting for van den Berg, however, is the impact it has had on Forico itself. “It’s really driving decision making. Measuring carbon got us thinking about longer rotation and downstream value-adding from forestry products. If we were going to leave trees on the stump for another 10 years, what’s the impact of that in terms of carbon, for example? That thinking opens us up to carbon markets and different sorts of products that can sequester carbon and be future replacements for fossil fuel-derived products.”

In the new year, Van den Berg and her team will work on a Social Capital Report to help monitor and measure the impact Forico has on its staff and communities, considering inclusion, the effect of job growth, training and development, regional supplier payments and Indigenous population engagement, among other factors. “The idea is that we’d have the full trifecta – people, profit and planet,” van den Berg explains.

Having done all this work, it’s clear to van den Berg that natural capital reporting is well within the realm of the accountancy profession. “Accountants are so well placed, with their skillset, experience and influence in businesses, to consider the metrics and elements of natural capital and calculate their value, presenting them as cost drivers and value drivers. 

“I think CFOs could be called Chief Value Officers in the future. It’s not going to be just about financial metrics. If we want sustainability to be truly embedded in our businesses, it has to be embedded in the finance community and with the CFO.” 

Find out more about the Finance for the Future Awards

Finance for the Future

The 2023 awards are open for entries.

Finance for the Future Awards logo

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