Susan Muldowney

How can you put a monetary value on the natural environment? Surely it’s priceless, so why would you even try? For Tasmanian forestry management and timber plantation company Forico, you measure what matters. Calculating the natural value of its vast estate through its landmark Natural Capital Report underscores its worth and informs how it may be protected.

Forico was formed in 2014 after Tasmanian forestry enterprise Gunns went into receivership. It is Tasmania’s largest private landholder and manages about 174,000 hectares. Just over half of that is productive plantation estate of mainly hardwoods, such as eucalypts, which are used for sawlogs, pulp and paper production. The rest of the land is native forest held for biodiversity conservation.

Both the plantation and natural forest estate forms the basis of the company’s 2021 Natural Capital Report, which values its natural capital assets and ecosystem services at more than A$3.4 billion (split A$400 million for business and A$3 billion for society) and a value of sequestered carbon as high as A$9.2 billion.

“In our business, we are so dependent on the natural environment for the provision of biomass,” explains Rayne van den Berg CA, Forico’s chief financial officer.

“We rely on the soil and the water and, arguably, the CO2 in the air. We wanted to be able to tell the clear story about value, and this meant converting all the tonnes, hectares, litres and other metrics that had been collated and making it comparable to our financial metrics. That single language of the dollar makes the value relatable and clear to readers.”

Picture: The Forico Natural Capital Report 2021.

Telling nature’s story

When van den Berg joined Forico two years ago, the company was working with a consultant and using the System for Environmental-Economic Accounting (SEEA), which is the UN’s framework for reporting environment and ecological values.

“A lot of work had already been done to collect the underlying data,” she says. “There were conceptual theories of what the report might look like, but it was more of an economics approach – it wasn’t the accounting I knew as a professional accountant.”

While SEEA demonstrates what should be measured and how, van den Berg was more 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.

“The Protocol gives you a framework of how to start these projects,” she says. “It’s not prescriptive; it’s more principles based and, as an accountant, I loved that. The principles framework includes things like completeness, accuracy, relevance, reliability – all those things that chartered accountants are trained in as the basis of our profession.”

Picture: Rayne van den Berg CA, Forico’s chief financial officer (at left) and Cathie Bates CA, Forico’s environmental accountant.

Simple steps in a complex project

The team started by focusing on a handful of its most material ecosystems such as biomass, carbon sequestration, water flow, sediment control and habitat. The aim, says van den Berg, was to avoid becoming overwhelmed by the sheer complexity of the project.

“We needed to understand the assessments that had been done across the natural forest – whether they were in a good condition, whether they needed remedial work, and then pull that all together to create a number – a net contribution of what we were giving or taking away from nature and society across our estate.

“That was really important for us and our investors because a report with a balance sheet, P&L and notes is something familiar and trusted by people making resource allocation decisions,” adds van den Berg. “Equally, it starts that discussion around what it’s really worth.”

Forico’s environmental accountant, Cathie Bates CA, worked with the company’s ecologists, foresters and resource information specialists to develop a common language of what value meant to the business and to society.

“Our resource information team, for instance, has amazing amounts of data, but they use it for different purposes to what we needed it for,” she explains. “They are using this information about the landscape, whether it’s a fire risk assessment, or monitoring for weed management. We saw the same information as providing a story about conservation.

“Communication and the ability to tell the story in a meaningful way was really important,” adds Bates. “It comes down to the bigger picture for accountants, not just sitting in a corner tapping away at a keyboard.”

The challenge of assurance

The Natural Capital Report gave van den Berg the opportunity to be creative, which she admits is a trait not traditionally valued in a CFO.

“We were quite experimental because there is nothing else like this report in the world. We realised early on we needed to get some credibility for what we were presenting to really add value and give our readers confidence.” KPMG provided a public limited assurance opinion and van den Berg describes their professional scepticism as invaluable.

“They really challenged us, and that’s what you want from an audit or assurance partner,” she says.

“We had many robust discussions about things like the principle around completeness, which accountants know and love.” Julia Bilyanska CA, director in risk assurance at KPMG in Melbourne, says more organisations are seeking to articulate their ESG agenda in meaningful and useful ways.

“Forico’s Natural Capital Report is a decisionuseful, illustrative way of articulating the value you create and the value you take away through your operations,” she says. “Once you put it into dollar values, it leads to a much deeper conversation beyond what a sustainability report can achieve through narrative and quantitative metrics that fall short of a monetised impact.”

“Forico’s Natural Capital Report is a decision useful, illustrative way of articulating the value you create and the value you take away through your operations.”

As this report was the first of its kind, Bilyanska says KPMG brought in a multidisciplinary team with experience in hydrology, forestry and sustainable finance, in addition to accounting.

“We needed to have a whole range of perspectives to ensure we could bring that robust challenge.” Bilyanska adds that even an experimental report requires parameters and this was provided through the Natural Capital Protocol framework.

“That was one of the ‘aha moments’ for Forico,” she says. “They engaged more with that framework on the back of some of the challenges that we raised.”

For van den Berg, reporting on the value of the natural environment can help companies address one of society’s greatest challenges.

“If businesses and markets are to help develop the solution to climate change, they need to be able to measure their natural environment, compare it and make balanced decisions around resource allocation,” she says. “By not valuing it and not putting it into some kind of metric or report, we risk saying that it’s worthless.”

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