THE term ‘nature-related reporting’ is a relatively new addition to the vocabulary of accountants but one that is likely to become more pervasive in the coming years.

The launch of the Taskforce on Nature-related Financial Disclosures (TNFD) in 2021 reflected the increasing demand for the disclosure of organisations’ material nature-related impacts, but nature-related reporting standards and practices are still very much at an early stage in their development.

Professional accountants are at the frontline of sustainability-related reporting and insights. With this in mind, a new report from ACCA, ‘Empowering business: Navigating nature-related reporting’, explores nature-based reporting and its implementation in practice, including shareholders’ expectations, the knowledge required to get started and practical examples from first-movers.

Matter of urgency

“Accountants have a crucial role, as stewards of organisational resilience and enablers of trust and transparency between organisations and financial markets,” says the report. “ACCA believes that by undertaking nature-related reporting, organisations can drive meaningful action to tackle the sustainability-related challenges our world faces.” But it adds that guidance, and regulatory alignment with international standards, is needed as a matter of urgency.

The report sets out the core principles of nature-related reporting, which it describes as ‘disclosing an organisation’s material nature-related impacts, dependencies, risks and opportunities’. ‘Impact’ in this context is defined by the TNFD as “Changes in the state of nature (quality or quantity), which may result in changes to the capacity of nature to provide social and economic functions. Impacts can be positive or negative. They can be the result of an organisation’s or another party’s actions and can be direct, indirect or cumulative.”

The fact that nature-based reporting is a complex area that can seem daunting is acknowledged: “Nature has a far greater number of metrics than those used for climate-related reporting; it involves more sophisticated, diverse and location-specific factors, which are harder to standardise.”

A number of existing frameworks and standards already inform nature-related reporting, including the TNFD and the International Sustainability Standards Board’s IFRS S1 and S2. This work is ongoing and the report says it is “essential that accountants have a foundational knowledge of the work to come”.

Drive action

The report is clear that the goal of reporting and disclosures is to drive action. Worldwide, 188 governments have agreed the Kunming-Montreal Global Biodiversity Framework, which sets four overarching goals to be met by 2050 and 23 targets by 2030. Target 15, says the report, is of particular interest to the accountancy profession, as it commits governments to taking measures that ensure large organisations disclose their risks, dependencies and impact on biodiversity. As we approach 2030, warns the report, we are likely to see “a more disorderly transition”, so organisations need to prepare and be adaptable.

The role of accountants in nature-related reporting, which starts with securing management’s commitment, is outlined. Accountants will also need to ensure that the key stakeholders and regulatory reporting obligations are identified.

In addition, the report sets out a number of challenges for accountants as organisations move towards transparent and reliable internal and external nature-based reporting:

• Accountants will need to build a strong business case internally, if change is not led by investor demand and regulatory pressure.

• Accountants will need to learn how to interpret new forms of data and integrate this into business processes, reporting and decision-making.

• Accountants will have to think beyond retrospective reporting and encourage investors to take a forward-looking view of nature-related risks.

• Additional tools and technology will be needed to understand and disseminate biodiversity and nature-related data.

• There will be ethical challenges around transparency of data; greenwashing, for example, poses a risk to organisations and their commitments.

Many opportunities

Even so, there are many opportunities for both the profession and the individual accountant, it stresses. Nature-related reporting affects a wide range of stakeholders, which underscores the role accountants play in delivering the wider public good. It also provides accountants with critical non-financial data that can enhance decision-making processes, emphasising the importance of accountants’ input into organisational strategy.

The report highlights opportunities in two further critical areas:

• Risk management. Nature-related reporting enables accountants to identify and manage financial risks better, including those associated with climate change, resource depletion and biodiversity loss, which can significantly impair an organisation’s financial health.

• Value creation. Sustainable practices can lead to cost savings, innovation and access to new markets, enhancing overall business performance, aligning financial performance with environmental sustainability and ensuring that the organisation can thrive in a resource-constrained world.

In practice, though, there is still much to be achieved. The report takes a deep dive into current biodiversity-related reporting, based on research carried out in collaboration with the University of Glasgow. This found that there is “considerable room for improvement in the adoption of nature-related reporting, as well as the quality of disclosures by early adopters of existing frameworks”.

“Nature-related reporting is increasingly recognised as an essential component of organisational reporting,” concludes the report. “It supports enhanced decision-making, regulatory compliance, risk management, and strategic planning, while also addressing ethical responsibilities and aligning with global sustainability goals.

“The role of accountants in this domain is pivotal in driving sustainable business practices and ensuring long-term financial health and environmental stewardship.”

Author: Liz Fisher, journalist

Source: ACCA Accounting and Business magazine