Assessing the Value of ‘Natural Capital’

Tarmac explores the concept of ‘Corporate Natural Capital Accounting’

April 13th 2016
Last September, the UK Government published its response to a series of reports produced by the Natural Capital Committee on the state of ‘natural capital,’ agreeing with five of the committee’s eight recommendations and giving qualified support to the remaining three. The Government is now committed to a 25-year plan for the natural environment and has set a target of incorporating natural capital into the national accounts by 2020. For further details of the Government’s response, see our news item “Defra responds to recommendations of Natural Capital Committee”.

The committee had recommended that “organisations should create a register of natural capital for which they are responsible and use this to maintain its quality and quantity.” In response, Defra said it did not consider the approach of creating ‘registers of natural capital’ as universally applicable: “However, we would encourage those organisations with significant influence or dependence on land, air and water assets to consider how best they can manage these to maximise value and minimise risks. The methods explored in corporate natural capital accounting can help enhance the quality of organisational decision making in this regard.”

Four pilot projects have now explored the concept of ‘Corporate Natural Capital Accounting,’ putting theory into practice. We look at the example of Tarmac, the only quarry operator to take part in these pilot projects. The focus for its investigation was Mancetter Quarry, near Atherstone in Warwickshire.

Broadly defined, ‘natural capital’ is those components of nature that provide value to society or add to a person’s wellbeing, such as green spaces, biodiversity, clean air, healthy soil, and – importantly in the case of Tarmac – mineral resources. The theory is that these components have a financial value, and the Government has estimated the value of the UK’s natural capital to be around £1.6 trillion. The aim of Corporate Natural Capital Accounting is to develop a balance sheet that assesses the value of natural capital owned or managed by an organisation, and provides a rationale for investing in projects that will enhance the value of natural capital at a given location.

In an article published last month in Quarry Management [1], Dr Martyn Kenny, Tarmac’s Sustainability Director, explains how this theory is being put into practice. At Tarmac, he says, there was a strong rationale for the trial:

“Tarmac are committed to making a ‘net positive’ contribution to biodiversity – ensuring that at the end of a quarry’s operational life the local ecology is richer and more varied and sustainable than before. Through the pilot, we wanted to test whether we could track our progress against this commitment using hard evidence and financial metrics. Additionally, we wanted to see how Corporate Natural Capital Accounting could support asset and resource management, and boost our community engagement programmes by showing the contribution our restoration schemes can deliver to the local environment. Lastly, we wanted to learn how the approach could improve the resilience and sustainability of our long-term operations.”

Tarmac has followed the recommendations of the Government’s Natural Capital Committee in, as a first step, compiling a register of the natural capital at Mancetter Quarry. The company estimates that there is the potential to extract a further two million tonnes of minerals from the quarry up to the end of its operational life in 2024, after which a programme of restoration work will recreate a natural habitat.

Tarmac’s Production Manager Mike Gale said: “We evaluated a wide range of areas. One was carbon sequestration and storage from soils and vegetation. Another was habitat and biodiversity. Ecological restoration and habitat management has been taking place at the quarry since 1999. Also important were the minerals yet to be quarried, which have a natural capital value. Natural water resources were a key part of the assessment, and recreation and amenity were a central consideration.”

Tarmac followed the framework developed by the Government’s Natural Capital Committee for Corporate Natural Capital Accounting, which compares the current value of a site’s natural capital with its future value following a restoration phase. According to the article in Quarry Management, Tarmac began by looking at the details of its daily site operations. The first set of data was supplied by Cranfield University, who had been commissioned to quantify ecosystems at the site. Consultants were then commissioned to develop modelling techniques that helped to provide the final datasets.

The result of this analysis showed how Tarmac would achieve its net positive ambitions for the site. At the time of the pilot, Mancetter Quarry had a total net natural capital, excluding mineral reserves, of £0.11 million. Tarmac’s restoration programme for the site is scheduled for completion by 2032. And for that year, the financial value of the fully restored site, including the value of improved wildlife conservation, recreational benefits and carbon sequestration, was forecast to be £3.56 million, which would exceed the restoration costs.

Dr Kenny said that the Corporate Natural Capital Accounting study showed that a restored quarry carries significant value and highlights the benefits of the accounting process. “This was encouraging,” he said, “but the analysis does not give a whole picture, as the framework has no scope to consider the worth of natural capital once put to economic use. For our pilot we accounted for the value for mineral reserves at the time of the study, but the methodology required a zero value for the extracted mineral in 2032. We believe, though, that the working of mineral reserves delivers significant societal, environmental and economic benefit, as aggregate products are used in the construction of assets such as housing, schools and transport infrastructure. These are accounted for in different commercial and economic ways but we believe that when assessing the benefits accruing from a mineral site, the wider benefits arising from the use of the aggregates should be recognized in some way as it is for other forms of natural capital asset.”

He concluded, however, by saying: “The benefits of the process are clear and we’re proud to have been the first construction materials provider and quarry operator to have embraced Corporate Natural Capital Accounting.”

[1] ‘Taking nature into account’, in Quarry Management, March 2016. Reproduced by Agg Net as “Tarmac Explore the Concept of Corporate Natural Capital Accounting”.

Photograph: Kissing gate and public footpath at Mancetter Quarry, near Atherstone, Warwickshire © Copyright Mat Fascione and licensed for reuse under this Creative Commons Licence.