The forest and wood products sector’s sustainability credentials are become increasingly critical to ensure public support, market access and investor confidence.
New research has explored opportunities to boost the industry’s sustainability credentials by using the principles of ‘natural capital accounting’. In addition to environmental benefits, this approach also has the potential to yield increased profitability.
Over the last decade, FWPA has commissioned a considerable body of work around the industry’s sustainability credentials. This has included investment in lifecycle inventories, comparative lifecycle assessments, environmental product declarations, and a review of the sustainability frameworks that are becoming increasingly prevalent in a number of sectors.
The review of sustainability frameworks in 2018 was undertaken by Dr Robyn Leeson, Vice-Chair of the Global Sustainability Standards Board and Principal at STR Consulting. It uncovered the strengths, challenges and motivators in sustainability actions and reporting, and was intended to help industry build capacity around sustainability issues, while aiding the coordination of a sector-wide approach.
The most recent FWPA investment in the area of sustainability is an initiative focused on ‘natural capital accounting’, funded by the Australian Government’s R&D4Profit program.
“Natural capital accounting is the term used to describe a commitment to measuring, recording and effectively managing the stock of renewable and non-renewable resources (or ‘natural capital’) used by enterprises to create products and services,” said Jim Houghton, Statistics and Economics Manager at FWPA.
For many years, forest growers have taken active involvement in certification processes as a means of demonstrating sustainability. In more recent times the United Nations, under the System of Environment and Economic Accounting (SEEA), has developed an approach to natural capital accounting.
The SEEA uses accounting principles such as extent and condition of assets, and the flows generated by those assets, to better understand the value of the environment in supporting our communities and the businesses that operate within them. This methodology is designed to complement the GDP data produced through the System of National Accounts.
The researchers focused on investigating new methods for the sustainable management of natural resources used by the forestry industry, such as soil and water.
The team set out to look at how natural capital accounting might be used in Australia to better manage our natural resources, improving certainty of supply and boosting resilience to the potential future impacts of factors like climate change.
“As demand grows for agricultural produce and access to natural capital is more contested, new approaches are required to better track and manage these resources,” said Houghton.
Initially, the researchers hypothesised that natural capital accounting could lead to increased profitability through discounted finance associated with reduced natural capital risk and improved capacity to engage in emerging environmental markets, including biodiversity and land stewardship.
At the same time, global supply chains and financiers are becoming increasingly concerned with environmental, social and corporate governance (ESG) commitments, through which the sustainability and societal impact of production can be measured.
“Primary producers adopting natural capital accounting will have early-mover advantages on global trends in sustainable production, including the ability to demonstrate and verify environmental performance, outcomes and risk disclosure in the face of increasing demands for them to do exactly that,” said Houghton.
The researchers developed detailed conceptual models or ‘case studies’, demonstrating the dependencies and impacts between natural capital and the three primary industries studied (forestry, cotton and fisheries).
The forestry model focused on the Green Triangle area, which includes softwood and plantation estates, plus a recreation state forest area. As well as supplying logs for local processors, exports are also undertaken in this area through the Port of Portland. This work tested the value proposition for natural capital accounting, and created a better understanding of the level of knowledge that exists within the industry.
Stakeholder engagement was supported by a literature review, which enabled the team to identify the key sources of natural capital for forestry, as well as considering cost-efficient and convenient approaches to measurement and reporting.
The proposed natural capital accounts provide a basis for any business within the industry to adopt and trial natural capital accounting within their own operations, industry or region.
“The research and experimental accounts provide valuable insights into how this approach can be applied at the enterprise level. As this methodology develops further, the research completed in this project will underpin additional work in the area,” said Houghton.
Going forward, the research team recommends continued efforts to improve natural capital accounting capability and capacity within primary industry enterprises, as well as further steps to address key knowledge gaps.
The project was funded by the Department of Agriculture, Water and Environment (DAWE), via the Rural R&D4 Profit program. It involved the collaboration of FWPA, and the Cotton and Fisheries Research and Development Corporations, as well as the investors who developed the experimental accounts. The full report can be found here: Lifting farm gate profits: the role of natural capital accounts