Nature loss poses a growing risk to the global economy, prompting calls for enhanced business accountability. To support the urgent business transformations required to achieve Nature Positive goals, decision-makers, investors, lenders and other stakeholders need consistent, comparable and decision-useful information on the state of nature and the benefits it provides. This paper presents a conceptual framework for natural capital accounting (NCA), adapting principles from financial accounting to support transparent reporting on business interactions with nature. We propose a set of structured statements-Natural Capital Balance Sheets, Natural Capital Income Statements, and Ecosystem Change Statements-that report on stocks of natural capital and associated ecosystem service flows. This approach is novel in its application of double-entry financial accounting principles to ecological assets, liabilities and equity, offering a structured method for tracking organisational stewardship of nature. The framework builds on established financial reporting practices and aligns with global statistical standards such as the United Nations System of Environmental-Economic Accounting (SEEA). A hypothetical example demonstrates how the framework can be applied to track changes in ecosystem condition and assess progress towards Nature Positive commitments. This work provides a foundation for mainstreaming NCA as a tool for ecological accountability. Further research is needed to operationalise the framework, refine ecological metrics and integrate NCA into governance and reporting systems. As global sustainability standards evolve, this framework offers a foundation for embedding nature into business reporting and decision-making and aligning corporate performance with ecological sustainability.

Businesses are embedded within nature. Their supply chains, operations, and products fundamentally depend on and impact nature. These impacts and dependencies can give rise to nature-related risks (as well as related opportunities). However, despite growing expectations from stakeholders, most businesses are currently not adequately measuring and reporting on these. To date, it has not been clear whether this requires the development of entirely new indicators, or whether various existing sustainability reporting frameworks could provide sufficient information on nature-related risks. This paper evaluates the decision-usefulness of existing indicators for the softwood plantation forestry industry in Australia. Decision-usefulness is assessed against three criteria: (1) relevance and completeness; (2) faithful representation; and (3) comparability. The results show some potential for adaptation of indicators already used in sustainability-related corporate accounting and reporting, which could help reduce the reporting burden and encourage uptake. However, gaps remain in measuring the financial consequences for business from nature-related risks and in providing sufficient comparable information to evaluate performance across industries and locations. Implications are discussed in relation to recent recommendations from the Taskforce on Nature-related Financial Disclosures (TNFD) and International Sustainability Standards Board (ISSB) sustainability standards IFRS S1 and S2.

There is growing awareness that biodiversity loss poses a significant risk to the global economy, but a lack of clarity on what this means for corporations, and how they are responding. This study provides a first quantitative assessment of biodiversity risk exposure across the world's largest listed companies, compared with their adoption of biodiversity policies, through analysis of disclosures from a sample of 11,812 companies from 2004 to 2018. We find that companies have started responding strategically to biodiversity risk, with 29% having adopted a biodiversity policy by 2018. However, around $7.2 trillion of total enterprise value remains exposed to unmanaged biodiversity risk. Companies in sectors with material impacts on biodiversity tend to have high levels of response, but there is poorer responsiveness to material biodiversity dependency risks. A natural-capital-based view (NCBV) of the firm is proposed to theorise how corporations are constrained by both their impacts and dependencies on natural capital.

Soil health significantly influences agricultural production, drought resilience and the delivery of other essential ecosystem services including climate regulation. Compared to other natural resources, however, soil has been largely overlooked from a sustainability reporting perspective. The invisibility of soil in financial reporting has contributed to the broader lack of financial incentives for agribusinesses to implement soil stewardship strategies. At present, the ISSB and other sustainability reporting bodies including the TCFD, GRI, IIRC, SASB and CDSB have offered only limited coverage on soil-related matters.Our study aimed to contribute to the development of ED/2022/S1 and advance soil-related reporting by engaging ASX-listed agribusiness financial statement preparers and investors to understand their perspectives on the relevance of soil-related risks and opportunities to investment decisions and their general soil reporting preferences. A mixed-method approached was adopted across two research phases: 1. archival analysis of current soil disclosure practices based on a review of the 2019-21 annual reports, corporate governance statements and CSR-reports of the 25 largest ASX-listed agribusinesses; and 2. in-depth, semi-structured interviews (n = 14) with stakeholders from a broad range of Australian agribusiness financial statement preparers and users. These interviewees included senior representatives from large corporate agribusinesses, investment entities and corporate advisors. Our archival review found that while reporting on sustainability-related matters is increasing around factors such as greenhouse gas emissions, water management, and climate change more generally, there is minimal discussion around the management of soil, soil health and soil-related risks. Interviewees confirmed the significance of soil health in sustaining agricultural productivity. Whilst many investors still lack a detailed appreciation of the nature and ramifications of soil health, the recognition of the importance of soil is clearly growing. In this regard, many respondents anticipated that soil will be the focus of increased agribusiness investment and lending decisions. There was strong support for enhanced soil reporting by agribusiness and it was felt that the ED/2022/S1 framing of disclosures (i.e. governance; strategy; risk management; and metrics and targets) would provide a good foundation for this. This being said, given the diverse and complex nature of soils, respondents acknowledged the difficulty associated with reaching consensus on the definition of soil health and universal soil health metrics and targets. Should soil reporting be enhanced, there was a preference for soil-related information which is simple, concise and communicated in terms which are familiar to investors. Furthermore, any information communicated to investors should not be above and beyond the kinds of information which is already used by agribusinesses for their own management purposes. These results will help to identify the most appropriate approaches to enhance corporate soil reporting and priority areas for regulatory attention. Doing so will help determine the decision needs of investors and creditors in the listed agribusiness sector. This will facilitate the process of overcoming information asymmetries between corporate farmers and their investors and creditors, which currently act as a barrier to increased investment in soil stewardship. The project’s focus on soil reporting practices will directly contribute to the AASB’s focus on new areas of financial reporting, the international advancement of ISSB’s sustainability reporting agenda and other related international developments focused on climate-change and nature-related risk reporting.This paper is work-in-progress and the preliminary findings were presented at the 2022 AASB Research Forum.

An increasingly widespread accounting practice for electricity (scope 2) emissions, known as the 'market-based method', is problematic as it allows companies to use purchased renewable energy attributes (REAs) to report lower emissions, which therefore no longer reflect the actual location-based electricity generation emissions resulting from the company's electricity consumption. Using REAs therefore may create a moral hazard, as companies using these arrangements are insulated from the consequences of their actions and may thus have less incentive to genuinely reduce their emissions. We construct a year-on-year matched sample of firms using/not using REAs (2,716 firms with 12,700 firm-year observations from 2006 to 2018) and apply a two-way fixed effects difference-in-difference (DiD) method to investigate the effects of REA use on emissions performance. We find that firms using REAs increase their absolute energy consumption and absolute emissions (scope 1 and 2) relative to companies that do not use REAs, while simultaneously reducing their relative emissions intensities per unit revenue, and that all effects are more significant after three or more years of REA use. The observed intensity reductions do not indicate genuine improved emissions performance, however, as firms using REAs do not improve their energy efficiency, but instead have higher revenue and tend to be located in countries with lower location-based grid emission factors. We conclude that companies, investors, and customers should beware the potential for moral hazard arising from the use of the market-based method, and should ensure that renewable energy purchasing drives additional renewable supply and does not distract firms from taking genuine mitigation actions.

Financial institutions are indirectly exposed to risks associated with the impacts and dependencies on natural capital and ecosystem services of the companies that they invest in, lend to, and insure. This is particularly true for banks lending to agriculture: a sector with both significant impacts and critical dependencies on natural capital. Bank lending is a vital source of new finance for the sector, which is essential to achieve sustainable intensification targets. Yet current credit decision-making practice is still based on conventional financial and management indicators, lacking any systematic assessment of natural capital risks, especially those associated with dependencies. Operationalising natural capital risk assessment requires practicable indicators and data to evaluate the most material natural capital risks for a given sub-sector and geography, but it is unclear to what extent these are available. We assess the practicability of natural capital dependency risk indicators and data sources for a critical case study of Australian sheep production. We find that at least moderately practicable indicators and data sources are available to assess the 11 major dependency risks that are material for this industry. Challenges remain in determining risk thresholds for most indicators, and quantifying risk impacts on profitability.

The creation of a market for steel produced by less carbon-intensive production processes, here called ‘green steel’, has been identified as a means of supporting the introduction of breakthrough emission reduction technologies into steel production. However, numerous details remain under-explored, including exactly what ‘green’ entails in the context of steelmaking, the likely competitiveness of green steel products in domestic and international markets, and potential policy mechanisms to support their successful market penetration. This paper addresses this gap through qualitative research with international sustainability experts and commercial managers from leading steel trade associations, research institutes and steelmakers. We find that there is a need to establish a common understanding of what ‘greenness’ means in the steelmaking context, and to resolve various carbon accounting and assurance issues, which otherwise have the potential to lead to perverse outcomes and opportunities for greenwashing. We identify a set of potential demand-side and supply-side policy mechanisms to support green steel production, and highlight a need for a combination of policies to ensure successful market development and avoid unintended consequences for competition at three different levels: 1) between products manufactured through a primary vs secondary steelmaking route, 2) between ‘green’ and traditional, ‘brown’ steel, and 3) with other substitutable materials. The study further shows that the automotive industry is a likely candidate for green steel demand, where a market could be supported by price premiums paid by willing consumers, such as those of high-end luxury and heavy-duty vehicles.

This article explores whether increasing fossil fuel divestment commitments are related to the reduction of capital flows into the oil and gas sector, based on an analysis of syndicated lending, equity and bond underwriting across 33 countries from 2000 to 2015. We find that increasing oil and gas divestment pledges in a country are associated with lower capital flows to domestic oil and gas companies. This effect is enhanced in more stringent environmental policy regimes and diminished in countries which heavily subsidise fossil fuels. However, the divestment movement may have an unintended effect, insofar as domestic banks situated in countries with high divestment commitments and stringent environmental policies provide more finance to oil and gas companies abroad. We explain these findings through the lens of institutional theory and show how both regulatory and socially normative elements of institutions shape this dynamic.

ABSTRACT Negative emissions technologies (NETs) are an essential part of most scenarios for achieving the Paris Agreement goal of limiting warming to below 2°C and for all scenarios that limit warming to 1.5 °C. The deployment of these technologies requires carbon accounting methods for a range of different purposes, such as determining the effectiveness of specific technologies or incentivising NETs. Although the need for carbon accounting methods is discussed within the literature on NETs, there does not appear to be a clear understanding of the range of different accounting challenges. Based on a systematic literature review this study identifies five distinct accounting issues related to NETs: 1. estimating total system-wide change in emissions/removals; 2. non-permanence; 3. non-equivalence of ‘no overshoot’ and ‘overshoot and removal’; 4. accounting for incentives for NETs; and 5. the temporal distribution of emissions/removals. Solutions to these accounting challenges are proposed, or alternatively, areas for further research and the development of solutions are highlighted. One key recommendation is that carbon accounting methods should follow a ‘reality principle’ to report emissions and removals when and where they actually occur, and an important overall conclusion is that it is essential to use the correct accounting method for its appropriate purpose. For example, consequential methods that take account of total system-wide changes in emissions/removals should be used if the purpose is to inform decisions on the deployment or incentivisation of NETs. Attributional methods, however, should be used if the purpose is to construct static descriptions of possible net zero worlds. Key policy insights Negative emissions technologies (NETs) raise a number of distinct carbon accounting challenges, the importance of which varies across different NETs. Attributional life cycle assessment is not an appropriate method for estimating the system-wide changes caused by the deployment of NETs. Consequential greenhouse gas accounting methods should be used to estimate system-wide changes, and should be used as much as possible for guiding incentives for NETs. Greenhouse gas accounting methods should follow a ‘reality principle’ to report emissions and removals when and where they actually occur.

An increasingly widespread accounting practice for electricity (scope 2) emissions, known as the ‘market-based method’, is problematic as it allows companies to use purchased renewable energy attributes (REAs) to report lower emissions, which therefore no longer reflect the actual location-based electricity generation emissions resulting from the company's electricity consumption. Using REAs therefore may create a moral hazard, as companies using these arrangements are insulated from the consequences of their actions and may thus have less incentive to genuinely reduce their emissions. We construct a year-on-year matched sample of firms using/not using REAs (2,716 firms with 12,700 firm-year observations from 2006 to 2018) and apply a two-way fixed effects difference-in-difference (DiD) method to investigate the effects of REA use on emissions performance. We find that firms using REAs increase their absolute energy consumption and absolute emissions (scope 1 and 2) relative to companies that do not use REAs, while simultaneously reducing their relative emissions intensities per unit revenue, and that all effects are more significant after three or more years of REA use. The observed intensity reductions do not indicate genuine improved emissions performance, however, as firms using REAs do not improve their energy efficiency, but instead have higher revenue and tend to be located in countries with lower location-based grid emission factors. We conclude that companies, investors, and customers should beware the potential for moral hazard arising from the use of the market-based method, and should ensure that renewable energy purchasing drives additional renewable supply and does not distract firms from taking genuine mitigation actions.

Increased pressure on natural resources is expressed globally through land degradation, biodiversity decline and global climate change. In response to recognition that these challenges must be addr...

This paper explores how fossil fuel divestment commitments and environmental policies have shaped the geography of capital flows into the oil and gas sector, based on the analysis of syndicated lending, equity and bond underwriting across 33 countries from 2000 to 2015. We find that the value of total assets pledged for divestment in a given country is negatively associated with capital flows to domestic oil and gas companies, particularly when divestment is led by regional or sovereign governments. Amongst environmental policy instruments, emissions trading schemes and renewables feed-in tariffs have been most impactful in reducing oil and gas sector capital inflows.

Voluntary organic standard-setting organisations (SSOs) depend upon public trust in the truth claims implied by their labels: that the product in question has been produced using organic methods. They create and maintain this trust through assurance frameworks based on third-party verification of compliance with organic standards. It is therefore potentially problematic if an SSO makes additional claims that are not capable of being supported by their assurance frameworks. We investigate the claims made about the sustainability of organic agriculture by three voluntary organic SSOs, compared with assurance provisions within their standards. The analysis covers Australia, which has 53 per cent of the world's certified organic farmland; and is extended internationally by including the IFOAM standard, with which a further 49 organic standards are affiliated worldwide. We find that while these standards generally contain principles and requirements that support sustainability claims, they lack well-specified means of verification in most cases other than the 'core' claims to exclude synthetic chemical inputs and genetically modified organisms. This assurance gap creates the risk of a consumer backlash. We discuss two ways to mitigate this risk: by strengthening verification within standards; and/or by employing new agricultural information and communication technologies to support claims outside the certification process.

This paper provides a techno-economic analysis of a hypothetical first-of-its-kind CO2 capture and storage project in a modern Chinese steel production plant. It assumes the use of amine capture technology of the relatively high concentration CO2 emissions from the iron making process. The technical configuration of the project was modelled using the Advanced System for Process Engineering (ASPEN), combined with a financial model. Global crude steel production reached 1.6 billion tonnes in 2015, an increase of 41% over the 1.1 billion tonnes in 2005. China alone produced 804 million tonnes of crude steel in 2015, an increase of 130% over the 350 million tonnes in 2005. Applying environmentally-friendly and low-carbon technologies is the major future trend for the steel sector globally. The EU Commission’s Low Carbon Roadmap anticipates a global emission intensity of less than 0.2 tCO2 per tonne of crude steel by the end of 2050 compared to the current level of above 1.3 tCO2 per tonne, and China’s average of 2.18 tCO2 per tonne in 2014. The Roadmap suggests carbon capture and storage is a key technology to achieve larger emission reductions in the iron/steel sector. The cost of CO2 avoidance for the modelled 0.5 million tonne/year capacity CO2 capture project with transport and storage is USD69/tCO2. Assuming that the project runs at 90% capacity (0.45 MtCO2/year), over 25 years, the project would capture 11.25 MtCO2. However, this is offset by emissions from increased energy consumption so the project would only reduce aggregate emissions by 0.36 MtCO2/year, or a total of 8.88 MtCO2 over its lifetime. The cost of CO2 avoidance is sensitive to a number of assumptions, including the discount rate and the cost of CO2 transportation and storage. The discount rate of the capture project is assumed to be 12%, taking into account the cost of capital of Bao Steel and the risk of the CO2 capture project. If a project is considered as a moderate risk investment applying an 8% discount rate, the cost of CO2 avoidance (i.e. the abatement cost) will be reduced from USD69/t CO2 to USD64/tCO2. The assumption on transport and storage cost could be lower if the project could share the infrastructure with other large stationary emission sources.

. The aim of this study is to identify a comprehensive portfolio of technologies to lower carbon dioxide emissions in China ’s steel sector, and to illustrate the abatement cost curve for the sector.