A collaborative achievement

Natural capital accounting hit a milestone in October 2025, with launch of the first-ever global standard for natural capital accounting.

Approved and issued by the International Organization for Standardization (ISO), the standard – ISO 14054: Natural capital accounting for organizations – principles, requirements and guidance – builds on the foundations of British Standard BS 8632, published in 2021.

Ece Ozdemiroglu, CEO of eftec (Economics for the Environment Consultancy), was convenor of the multinational working group – combining specialists from the various national standardisation bodies – that drafted the text. While Dr Stephanie Hime, CEO of sustainability consultancy Little Blue Research, was the Project Lead.

ISO 14054 was the outcome of a thorough international collaboration with many others. Hime says: “ISO drafting is not about reaching majority agreement, but complete consensus. That’s what makes its standards so rigorous.”

What is natural capital accounting?

Natural capital accounting (NCA) is a process for systematically identifying, measuring, recording, summarising and reporting the periodic and accumulated net changes due to an organisation’s activities over a period to:

• natural capital (for example, an increase or decrease in the area or quality of ecosystems), and
• the associated flows of ecosystem services and their value to the business and society - in monetary terms where possible. 

It uses standardised formats and principles that mirror financial accounts, but with some necessary revisions. While it can focus on individual business units or sites, NCA is typically applied at the company level with a scope that may include assets controlled directly by the organisation or others outside its control.

Typically, outputs of an NCA include:

• A natural capital income statement (NCIS) – showing increases and decreases in natural capital and associated benefits during the relevant accounting period (such as, the previous financial year).
• A natural capital balance sheet (NCBS) – presenting the value of the organisation’s natural capital assets and liabilities into the future.
• Accompanying notes – which can include valuation approaches and assumptions, for example.

The purpose of NCA is to provide structured, consistent, comparable and auditable information on nature-related impacts and dependencies with regular reporting cycles, which can be used alongside other financial data to inform decision-making and reporting.

How ISO 14054 is applied

Welcoming the launch of ISO 14054, the British Standards Institute highlighted how the new ISO standard can be applied by any type and size organisation – providing a range of benefits:

• For businesses it provides insights on nature-related risks and value-creation opportunities, supporting decision-making (capital investment, site selection, risk management etc) and stakeholder communication.
• For investors and financial institutions it provides a means to compare nature-related risks and impacts of the organisations they invest in, lend to and insure, supporting investment strategies.
• For government and policymakers it can inform public procurement, guide the allocation of public funds and support policies for sustainable economic growth.

“Accountants have a key role to play in preparing NCAs and can contribute valuable skills and techniques to help organisations apply the standard, including structuring of the accounts, valuation and data controls,” says Hime. “But they’re not expected to do it alone – it requires collaboration between a wide range of people, including sustainability and environmental professionals, to be truly effective.”

“It’s also important that 14054 sits within ISO’s 14000 family of environmental management standards,” Ozdemiroglu says. “Ultimately, the purpose of NCA is to enable organisations’ to better manage their dependencies and impacts on nature to improve environmental, social and economic outcomes.”

Why this matters for finance professionals

Nature-related risks and opportunities are increasingly affecting a business’s financial position and performance, and its resilience over short, medium and long-term, and are, therefore, part of the finance team’s responsibilities.

NCA can help finance professionals measure, manage and track these issues and translate them into financial insights.

ICAEW is exploring these issues through the A Track project. The Institute is leading work on this four-year €11m EU Horizon Programme initiative, to help businesses integrate nature into core finance processes, leveraging and complementing tools like NCA.

The A Track publication, Embedding nature into business, developed by ICAEW, offers practical steps and foundational knowledge to help finance teams get started. It also explores high-level use cases, highlighting how NCA can support and add value to specific finance activities, including financial planning and analysis and financial reporting.

NCA interconnected with financial accounts

Hime explains that although NCAs are distinct from financial accounts, they complement each other and are interconnected. For example, she says, a business may have a manufacturing plant that is protected from flooding by an upstream wetland. What if this wetland is owned by another party that decides to drain and develop the site?

“At first, this may not appear to be a big deal, because you may not be aware the business relies on the wetland,” Hime says. “However, if that flood protection service is lost, the financial risks in terms of damage and disruption may be very real.”

NCA is a tool that a business can use to identify these kinds of dependencies and the hidden value it derives from nature. Accountants can then use these insights to inform financial considerations, asking questions like:

• What would the financial impact be if we took no action?
• What strategies could we employ to protect this value?

In many ways, NCA is best seen as a management accounting exercise, says Ozdemiroglu. She highlights that organisations can treat NCAs as ‘living documents’, updating them as circumstances change.

She explains: “These accounts can provide finance teams with the basis to ask, for example, ‘What if we planted trees on this land instead of crops? What return on investment would this provide?’”

ISO 14054 has emerged amid growing focus on nature in global accounting, reporting and assurance standards and frameworks. “The intention is to fit into this existing landscape, offering the credibility associated with ISO standards,” Ozdemiroglu says.

Hime reinforces this point, adding: “If there’s a need to understand and communicate the value of a particular nature-related impact or dependency, this standard will show you how. This enables organisations to not only benefit themselves but also align support compliance with other standards.”

“For our members, NCA is a valuable tool to help manage rising nature related risks and protect value,” says Toby Roxburgh, ICAEW Sustainability Manager, Nature and Biodiversity.

“Whether by providing information on natural assets, liabilities and provisions to inform financial reporting – or by tracking nature-related performance metrics to strengthen financial planning – NCA serves multiple functions.”

Roxburgh concludes: “With growing demand for consistent, comparable and auditable nature-related data, accountants are ideally positioned to drive adoption of NCA.”

Ozdemiroglu also urges accountants to get to know ISO 14054. She says: “Play with the standard. Get familiar with it. It’s a means to help connect sustainability and financial data to inform the decisions you want to influence.”