Designing natural capital accounting for agriculture: perceptions of farm accountants

Abstract

Purpose

This paper aims to accelerate the development of natural capital accounting via an early report of farm accountants responses to prototype natural capital accounts. The authors test an approach to co-development with this important group who are both preparers and users of natural capital accounts but are not presently included in the research or development of natural capital accounting.

Design/methodology/approach

Seven practicing farm accountants and three accountants with an interest in this area were interviewed to gather responses to prototype farm natural capital accounts and make changes to improve the clarity, relevance and usefulness of the accounts. The paper calls for more work in participatory co-development to speed up the development and implementation of natural capital accounting.

Findings

The authors found that all participants were supportive of the concept of natural capital accounting and the consideration of agricultural ecosystems as assets of a farm business. Most participants could interpret the accounts and saw them as useful and important to improve sustainability outcomes. Participants highlighted the need for 1) the development of reliable, consistent valuation methods that resist manipulation; 2) natural capital accounting to be affordable and provide value to users; and 3) farmers to be supported to apply and report the methods for different objectives and contexts.

Research limitations/implications

Since agriculture is a significant source of greenhouse gas emissions and changes to natural capital in the economy, information included in natural capital accounts of farm businesses is important to inform policy as well as farm management decisions. This research reveals strategies for policy makers to accelerate the supply of this information to enable market and other incentives to address urgent issues related to sustainability. Results of this study are from a limited sample of well-informed individuals and are thus preliminary. However, they highlight the need (and opportunity) to further co-design natural capital accounts in agriculture with farm accountants.

Practical implications

Farm accountants are important stakeholders in the development and implementation of natural capital accounting processes and systems, yet they are currently excluded from the science and standard-setting processes underpinning natural capital accounting. Co-development represents a fundamental shift in how the science around natural capital accounting is done and is an important step towards creating a more transdisciplinary approach to working with users. The authors show how users can be involved in developing natural capital accounting methods, standards and reports.

Social implications

Natural capital accounting is a promising method to help reverse sustainability problems, if it is co-developed with stakeholders to be useful and useable.

Originality/value

To the best of the authors’ knowledge, this research is the first to report on farm accountants’ perceptions of natural capital accounts in agriculture and to present a case study of co-developing natural capital accounts with farm accountants.

Citation

Fleming, A., Ogilvy, S., O’Grady, A.P., Green, I., Stitzlein, C. and Horner, C. (2024), "Designing natural capital accounting for agriculture: perceptions of farm accountants", Sustainability Accounting, Management and Policy Journal, Vol. 15 No. 7, pp. 85-105. https://doi.org/10.1108/SAMPJ-04-2024-0356

1. Introduction

Globally, there is rising concern associated with ongoing climate change, land degradation and biodiversity loss. Failure on climate action, extreme events and biodiversity loss have been highlighted as three of the most important risks to the stability of global financial systems over the next decade (World Economic Forum, 2023). In response, there are growing calls for increased disclosure of individual entities’ dependencies and impacts on nature, along with a clearer articulation and disclosure of the associated risks and plans to adapt to and mitigate these changing environmental constraints (Capitals Coalition, 2023; TNFD, 2023; Dasgupta, 2021; TEEB, 2022). Global agreements such as the Paris Agreement to limit global warming to 1.5°C and the Global Biodiversity Framework’s objective to halt and reverse nature loss have set clear operating boundaries with respect to carbon emissions and nature loss. These are being enacted through initiatives such as the Taskforce on Climate-related Financial Disclosures (TCFD) (TCFD, 2023) and the Taskforce on Nature-related Financial Disclosures (TNFD, 2023) in collaboration with standards setters (e.g. IFRS, 2023a) and prudential regulators around the globe.

There are clear signals that business as usual must change, and there has been a significant focus in recent years on the role that natural capital accounting can play in supporting this shift (Barker, 2019; Boyd et al., 2018; Dasgupta, 2021; Fleming et al., 2022; Hein et al., 2020; Ogilvy, 2020; Ogilvy and Vail, 2018). Natural capital is defined as: those renewable and non-renewable natural resources (such as air, water, soils and energy), stocks of which can benefit people both directly (for example, by delivering clean air) and indirectly (for example, by underpinning the economy). These stocks yield flows of ‘ecosystem services’ such as energy, water, plant and fibre growth, from which people derive benefits (Bateman and Mace, 2020, p.776).

Natural capital accounting has emerged from environmental accounting and green accounting (i.e. Burritt, 2004; Schaltegger and Synnestvedt, 2002; Scorzelli et al., 2023) and is the process of identifying and recording consistent and comparable information on natural capital and the goods and services generated by those assets and linking this information to changes to the economic position and performance of organisations and countries. This is increasingly being seen as an extension of existing management and financial accounting processes alongside other capitals outlined in the six-capital model – manufactured, natural, social/relational, human, intellectual and financial (IIRC, 2021).

Natural capital accounting can make an important contribution to a more stable financial system by providing increased visibility of the contribution natural capital makes to an individual entity, an industry, the economy and society in general. At the individual entity scale, it enables organisations to consider environmental performance in their decision-making process, particularly about how to best allocate financial and human capital or which organisations to be involved with (Barker, 2019; Ogilvy et al., 2022; van Putten et al., 2021). It may also help those who control and manage natural capital and/or policymakers to better consider competing objectives associated with the need to maintain or increase economic growth while also considering impacts on the environmental resources that the organisation is dependent on. As such, governments and the private sector are increasingly investing in ways to include natural capital in their accounts and reports of economic and environmental activity, including their general-purpose financial reporting and sustainability reporting (ISSB, 2023; IFRS, 2023b; TNFD, 2023; NSW Government, 2023; O’Grady et al., 2020; Barker, 2019; Australian Government, 2018).

Progress on natural capital accounting has accelerated in the last few years (Horner et al., 2022; Smith et al., 2022; Forico, 2021; Ogilvy, 2020) and focused case studies of natural capital accounting in use are emerging (Ogilvy et al., 2022; van Putten et al., 2021). “State of the art” research is emerging in natural capital accounting in agriculture, e.g. looking at the metrics of biodiversity (Fielding et al., 2023) and land restoration (Parkhurst et al., 2024). Furthermore, in Australia, projects have developed and demonstrated methods and case studies of farm-scale natural capital accounts [1] [2]. To enable widespread adoption, they need to be designed to be cost-effective to prepare and produce valuable information for users (Fleming et al., 2022; Ogilvy et al., 2022).

2. Literature review

Natural capital accounting and agriculture

Agriculture relies on natural capital as an important resource that underpins farm businesses (Ogilvy, 2015), and farmers are responsible for managing most of Australia’s natural capital resources (ABARES, 2023). Increasing social awareness (and political pressure) about the importance of nature (IPBES, 2016) is raising expectations about the environmental management on farms (TNFD, 2023; IUCN, 2022), and guidance for the agricultural sector has been emerging to help companies to prepare information about their impact and dependence on farm natural capital (Capitals Coalition, 2023; TNFD, 2023; TEEB, 2022; ISO, 2024), but these have not yet addressed the question of how farmers and farm accountants could be supported to provide the required information.

A recent legal opinion concluded that nature-related risks are likely to be considered as being foreseeable and that directors of companies have existing fiduciary duties to consider these as part of their broader risk management processes (Hartford-Davis and Bush, 2023). Furthermore, the ASX Corporate Governance Council Recommendation 7.4 states that listed entities should disclose whether they have any material exposure to environmental risks, and if so, how they manage or intend to manage those risks (ASX, 2019). Recently introduced standards such as the IFRS S2 Climate-related Disclosures internationally, and the Australian equivalent SR1 coming into effect in 2025 require organisations to report their climate related risks and impacts across their entire value chain (IFRS, 2023b). Indirect greenhouse emissions, referred to as Scope 3 emissions, comprise between 65 and 95% of the carbon impact of most companies, yet very little guidance has been provided as to how these disclosures should be undertaken in practice (PWC, 2024).

Farms are recognised as an important source of indirect carbon emissions and nature repair opportunities, referred to as Scope 3, for corporations in the economy, and the quality of data is presently very low (Swinkels and Markwat, 2024; Kering, 2018; Capitals Coalition, 2016). Despite this, farmers and farm accountants have not been included in the research on natural capital accounting for farm businesses. This may be because farm accountants are not subject to accounting audits and standards since most farm businesses are small and privately owned (ABARES, 2023) and not included in research on financial accounting standards.

Natural capital has been frequently discussed in environmental literature as part of ecosystem services (Hein et al., 2020; Turner et al., 2019; Scorzelli et al., 2023), and policy literature as part of reporting on global initiatives (Bateman and Mace, 2020; Souliotis and Voulvoulis, 2021; Ruijs et al., 2019) and is arguably its own subfield in sustainability accounting (Obst, 2015) and organisational management (IIRC, 2021). It is an emerging area in agriculture (Ogilvy, 2020; Ogilvy et al., 2022; Fleming et al., 2022). One reason natural capital accounting is relatively new in agriculture is because of the complexity of measuring and reporting holistically on the diversity of natural capital on farms, with a tendency for literature to focus on discrete components of farm natural capital, such as land use, production or water use (Brandon et al., 2021).

Adoption and policy literature across many different disciplines in environmental management, agricultural innovation and ecological restoration (to name a few) all suggest that stakeholders need to be active participants in the planning, conduct, evaluation and adaptive learning of new tools and technologies for behaviour change to take place and be “adopted” (Jakku et al., 2022). This paper builds on previous work that explored farmers’ perceptions of natural capital (Fleming et al., 2022) and natural capital accounting (Fleming et al., 2022), which highlighted that while farmers are aware of the different benefits that they derive from natural capital and often see themselves as stewards of the land, the economic argument for accounting for these benefits is not sufficient to drive adoption. Some farmers participate in natural capital accounting for other motivations, e.g. branding, niche market access and personal motivations (Ogilvy et al., 2022; van Putten et al., 2021). However, to create a broader social shift, other participants must support, guide and streamline the methods, standards and procedures of producing natural capital accounts for farms. This paper thus focuses on farm accountants as the most likely cohort to support farmers in navigating natural capital accounting, and as the cohort best placed to contribute to developing accounts in a way that will enable farmers to benefit from the information natural capital accounts can provide.

Farm accountants are trained in the standards, conventions, and concepts of financial accounting. As society moves towards more accounting for nature and sustainability components in reporting (CA, 2023), farm accountants will have an important role to play in implementing natural capital accounting (Fleming et al., 2023). However, farm accountants, as both preparers and users of natural capital accounting on farms, have not been researched, nor has the development of natural capital accounting included the expertise of farm accountants.

The convergence of social expectations, resource pressures and environmental concerns means that the urgency of understanding and reporting on natural capital in agriculture is a vital area of research. The benefit of engaging stakeholders in development processes is well-known and advocated by experts in participatory research, design thinking and user-centred design communities (Stitzlein et al., 2020; Nolet and Mao, 2018). To ensure that solutions are fit for purpose, engagement should be done early and in an iterative fashion so that stakeholder feedback is incorporated as the problem space is understood and while solutions are refined. Studies with small sample sizes are useful in this process when the cost of solution development is high, and where change is rapid (Rosala, 2023; Stitzlein and Mooij, 2019). Yet, natural capital accounting has not yet engaged with participatory research approaches. As agriculture grapples with natural capital accounting, there is a clear opportunity to work with users to co-develop accounts.

This paper aims to answer two key research questions. Firstly:

RQ1.

What do farm accountants think about natural capital accounting on farms?

Secondly:

RQ2.

How can natural capital accounts be made more relevant and useful for farm accountants?

This research is the first to report on farm accountants’ perceptions of natural capital accounting and to outline a process to co-develop natural capital accounts with farm accountants. It is transdisciplinary research that connects many fields of science, including user-centred design in agriculture (Stitzlein et al., 2020) and co-development of technology with users following science and technology studies, rural sociology and responsible innovation (e.g., Jakku et al., 2022). The theoretical implications of this work are to show how co-development is important to improve the translation of information into sustainable behaviour change in agriculture (Fleming et al., 2022). The practical implications are to contribute to the development of useful natural capital accounts in agriculture and to enable environmental and sustainability reporting in supply chains for food and fibre (Ogilvy et al., 2022; Ogilvy, 2020).

3. Methods

To understand what farm accountants think about natural capital accounting on farms and how accounts could be made relevant and useful for them, a series of natural capital accounts were prepared to use in interviews with farm accountants. The interviews were designed to elicit farm accountants’ thoughts about natural capital accounting for farm businesses and how the accounts can be made more relevant and useful.

3.1 Natural capital accounts

The series of natural capital accounts used in the interviews were prepared according to extant financial accounting concepts and conventions to reflect the latest theory and guidance on natural capital accounting. They therefore incorporate concepts and standards described in the United Nations System of Environmental-Economic Accounting: Ecosystem Accounting (SEEA EA) (United Nations, 2021) and are presented in a manner consistent with emergent case studies (O’Brien et al., 2023; Horner et al., 2022; Smith et al., 2022; Forico, 2021; Ogilvy, 2020). The values in the accounts were prepared from financial and other records drawn from a mock farm business and were designed to ‘tell the story’ of a series of targeted investments in natural capital. In preparing the example accounts, we assumed that natural capital accounts at the farm scale would apply valuation and reporting standards required in current financial accounting and those emerging from the UN SEEA and from developments in corporate natural capital accounting. Therefore, the valuation approaches underpinning the accounts applied these standards and conventions. For example, measurement approaches, and disclosures of the use of current market figures or business data in valuations are explicated in notes or descriptions according to required practice under IAS 13 Fair Value Measurement (IAS, 2011) and IAS 36 Impairment (IAS, 2014).

In the case study, the mock business owners had made these investments in response to identifying opportunities and challenges that could be addressed by changes to the natural capital of the farm. The series of accounts included ecosystem asset accounts, a performance statement for changes to the amount of carbon being stored and sequestered on the farm and a carbon position statement reporting net carbon flows (emissions and sequestration); a performance statement describing the changes to biodiversity resulting from changes to ecosystem assets and an example of how the financial values of the ecosystem assets might be presented in the financial balance sheet of the farm business.

3.1.1 Scenario.

The scenario was built around EcoFarmCo, a fictional (mock) farm business operating on a farm named Buriny, which it had purchased some years prior. EcoFarmCo aims to be a leading producer of positive environmental outcomes alongside agricultural commodities.

EcoFarmCo prepared its first set of natural capital accounts in 2015 by recognising Buriny’s ecosystem assets. Analysis of the accounts revealed that:

• EcoFarmCo would not meet its present obligation to store 18,333tCO_2-e because of a prior carbon contract signed a few years ago. EcoFarmCo and the prior owners of Buriny had left substantial portions of Buriny as remnant native vegetation, mainly woodlands. These ecosystems store and sequester significant amounts of carbon. However, EcoFarmCo cannot use these to retire its obligation for its ACCUs because of the rules governing the generation of ACCUs. Accordingly, EcoFarmCo decided to satisfy the obligation and retire the liability by purchasing the appropriate ACCU [3]s in 2015.

• Its reliance on exotic pastures dependent on nitrogenous fertilisers may restrain EcoFarmCo’s ability to achieve Net Zero greenhouse gas emissions (GHG). Accordingly, EcoFarmCo decided to convert poor-quality exotic pastures to mixed eucalypt agroforestry and use these to generate revenue from participation in carbon and biodiversity markets.

• Future climate projections indicate increases to wind speed and temperature that may constrain pasture production in future. To counter this effect, EcoFarmCo decided to convert some pasture areas to shelter-belts to provide protection to adjoining pastures.

• The natural capital accounts revealed that some areas of the grassy woodland and the native and naturalised pastures were in poor condition. To remedy this, EcoFarmCo decided to slightly reduce the grazing intensity in good seasons to increase the chances of improvement in the condition of these pastures.

The following accounts have been designed to tell the story of these changes to the natural capital (ecosystem assets) of EcoFarmCo and the changes to the financial and environmental performance associated with the changes to the ecosystem assets.

3.1.2 Ecosystem asset accounts.

The Ecosystem Asset Accounts are foundational accounts under the SEEA EA and emerging practice. Ecosystem Asset Accounts for EcoFarmCo (Figure 1) present a summary of the extent and condition of the ecosystem types of the farm at the initial recognition date of 2015 and then after revaluation in 2020. They also include details about the nature of the changes.

3.1.3 Carbon performance.

Standard accounting concepts and guidance for the inclusion of carbon in financial accounting are still emerging (Gheyathaldin, 2024). To test farm accountants’ responses to information about greenhouse gas emissions and sequestration, a carbon performance statement (Figure 2) was prepared. This was designed to communicate the outflows of GHG to the atmosphere from EcoFarmCo’s livestock, the use of fertilisers and fuels, and the inflows of carbon into the vegetation and soils of Buriny. The statement was prepared as an analogue of a cash flow statement or profit and loss statement. Notes to each entry explain the information being described. Values of GHG emissions were estimated from EcoFarmCo data relating to livestock carried and fertiliser use using Australia’s National Greenhouse Gas Inventory methods. Estimates for carbon stored and being sequestered were prepared using methods described in Ogilvy et al. (2022).

3.1.4 Carbon position.

The carbon position statement (Figure 3) is designed as an analogue of a financial balance sheet to show, at a point in time, the carbon stored in ecosystem assets of Buriny (“owned” by EcoFarmCo), alongside the amount of carbon required to be stored (“owed”) to satisfy obligations to other parties. In this case, the obligation is to satisfy the public commitment to be Net Zero GHG.

3.1.5 Biodiversity position and performance.

Similar position and performance statements were prepared for biodiversity to provide information about how changes to natural capital have affected the biodiversity of the farm (Figure 4). Methods for the quantification of biodiversity for natural capital accounting purposes are still emerging. The tables prepared for the research follow a modelled factor used in preparing farm-scale natural capital accounts (O’Brien et al., 2023).

3.1.6 Extended financial balance sheet.

An extended Financial Balance Sheet was designed to test the response of farm accountants to the presentation of individual ecosystem assets as a class of asset valued and presented separately to the value of the land (as a single line item under existing standards for Property, Plant and Equipment). Financial valuation methods for these follow present corporate accounting standards for Fair Value Measurement and emerging methods for valuation of ecosystem assets described in the SEEA EA (United Nations, 2021; Ogilvy and Vail, 2018; Figure 5).

3.1.7 Interview process.

To evaluate the accounts produced, we conducted interviews with participants who were experienced in farm accounting and who had knowledge or interest in farm natural capital. Participants were identified from on-line searches for expertise in farm accounting. The invitation to participate in the interview emphasised the purpose of the interview to explore how natural capital might be included in farm accounts. Participants with no interest or knowledge of on farm natural capital were not included in the study. Snowballing was used to capture further suggestions of other potential individuals from participants. As a result of our selection criteria we could only identify seven participants interested in natural capital and experienced in farm accounting. Three other participants were interested in natural capital accounting, but were not farm accountants (two were corporate accountants, one was a property valuer). They were included in our study due to their interest, but their comments were limited to their perceptions about the accounts, rather than their experiences, as they were not practicing farm accountants. We were only able to identify a limited number of farm accountants interested in natural capital accounting because of the emerging nature of the field.

If they agreed to participate, some background reading was provided about the fictional farm situation, along with the four different accounts demonstrated above. Participants were invited to look over the material before the interview. The interview was structured to be conversational and informal, with participants encouraged to express their thoughts and feelings without fear of “wrong answers”. During the interview, participants were firstly walked through the fictional farm example and the purpose of the project, which they had already received as background reading. Participants were given minimal or no explanation of the interpretation of the accounts. After the brief introduction, each participant was asked to explain what they understood from each account and were also asked questions about whether the accounts made sense, were easy to understand, would be useful, or were credible and fit for purpose. Participants were also encouraged to highlight areas of confusion or inconsistency or suggest alternative ways the accounts might be put together. Interviewers prompted participants for both positive and negative impressions of the accounts. In a few cases, a participant was not familiar with a particular concept, or stated they did not feel comfortable talking about it, i.e. carbon performance. In such cases, the interviewers gave more detail about how the numbers in the accounts were derived and how they were intended to be interpreted. Then, the participant was asked whether the process made sense and was logical, or if it could be improved.

The interviews were conducted with two interviewers and up to two participants and lasted on average one hour. In total, we spoke to three women and seven men between the ages of 30 and 50. One of the participants was from a non-English speaking background, but all participants identified as Australian and lived and worked in Australia. All interviews were conducted over video conferencing software and were recorded. Ethics approval was received by CSIRO Human Research Ethics number 109/20.

3.1.8 Coding process.

The recorded interviews were transcribed and qualitatively coded in NVIVO. Codes are constructed by describing the effect of phrases or sentences according to constructivist grounded theory (Charmaz, 2006). Constructivist grounded theory focuses on language use and context. It iteratively builds up themes from the data, checks each new idea against the broader source material, and explores the interconnections of individual and social perceptions. Codes were formed at the sentence level and then grouped into higher-level themes (see Table 1). The codes and the themes are also reported in Green (2022). One researcher led the coding process, attaching descriptors to sentences in interview transcripts to produce the codes in Table 1, e.g. “expresses the need for simplicity” or “expresses the need for training”. This process takes a few rounds of editing and checking to ensure the codes capture what the interviewee is trying to convey, and that each code represents a single key meaning. The coding process was cross-checked and validated by a second, experienced coder. The codes were then grouped into themes to speak to the research questions of: What do farm accountants think about natural capital accounting on farms? How can natural capital accounts be made more relevant and useful for farm accountants?

3.1.9 Results.

From the interviews, there were four themes where codes fit into similar conceptual groups: Clarity, Measurements and Assessments, Motivation and Reason and Standardisation (Table 1). Table 1 shows how the codes were grouped into each theme. The codes and themes indicate that participants think it is important for natural capital accounting to 1) develop reliable, consistent methods that resist manipulation; 2) be affordable and provide value to users; and 3) that farmers are supported to apply and report the methods for different objectives and in different contexts.

3.2 Coding structure and detail

The codes and themes listed in Table 1 demonstrate how participants were interested in what counts as natural capital and whether the accounts would be clear, easy to use, and consistent, as well as how (and by whom) measurements and assessments of natural capital would be produced on farms.

3.3 Usability testing of accounts

Since a key component of this research was collecting perceptions about the natural capital accounts, it was important to find out whether farm accountants found the reports easy to read or whether they were too complex to be practical. Three interviewees could understand the accounts without any prompting, and seven of the interviewees needed to be walked through some aspects of the accounts. Even though most of the interviewees required some discussion to feel comfortable with the accounts, after some explanations, all participants found the reports sensible and logical – suggesting that the process could be easily learned.

3.3.1 General support for natural capital accounting for farm businesses.

All participants saw an opportunity for natural capital accounting to provide evidence of change on farms, especially for areas not usually captured by accounts, such as revegetation efforts and habitat conservation. All interviewees were particularly interested in how numbers for carbon or biodiversity were calculated. They wanted the calculation to be clearly presented and considered this approach to be extremely useful and broadly transferable, even beyond agriculture; however, it was recognised as a complex and contested area that would need further exploration and careful evidencing and explanation:

The biodiversity index, that number, [it would] be good to know what it means and what the source of that information is (Interviewee, 2).

3.3.2 Developing reliable, consistent methods that resist manipulation.

All interviewees thought it important for the accounts to be simple to follow but also that they had a transparent process and methodology, with detailed notes provided about how figures were derived in addition to tables of numbers. This was seen to be important to avoid manipulation of accounts:

At the end of the day, it all comes down to the assumption, the underlying assumptions, doesn’t it, which is the same in any accounting really. I guess, they can be manipulated. Now, that, I guess, is part of the problem of getting accurate information out the end is the quality of what’s those underlying assumptions and the consistency of the process I guess. (Interviewee, 5)

3.3.3 Affordability and providing value to users.

Concerns were raised about the cost associated with farmers having to spend hours filling in paperwork or gathering data if accounts were overly complex. Participants noted that there could be a wide range of motivations for participating in natural capital accounting, from improving productivity to accessing niche markets, but the economic motivations for natural capital accounting were a barrier to participation. Paying for experts to complete accounts or provide data would further add to this cost. Because of these issues, participants thought it might be a long time before natural capital accounting becomes a part of standardised daily practice in agriculture. One participant stated:

“If we can reduce complexity, it’s more likely to be taken up practically. Because in terms of accounting, the only reason that complex accounting is done is because you’re forced to by ASX or you’ve got external shareholders and that was just that point that I was mentioning that usually with farms, there’s no-one pushing you to do more complex accounting and nobody sees the benefit of it, so if there’s external shareholders, like, a bigger agricultural enterprise, like the big massive ones, they would have sophisticated accountants that could do this regularly.” (Interviewee, 6)

This quote shows that farmers would need to see value in producing natural capital accounts beyond fulfilling an external reporting or legal requirement. As the push for reporting along the supply chain increases, farmers will likely require experts to help them; this experts’ help may be costly.

All interviewees commented on the skill required to produce accurate figures for the accounts, for example, when assessing land conditions. This would either require training or access to expertise. There was strong support for simple methods to input approximate scores, which could be validated with on-ground data collection every five years or so, recognising again that good natural capital accounting should be an active and iterative part of farm management:

“So, it would just need to have some tools to make it relatively easy and not cumbersome because you’re not just doing it once because you’re going to have to adjust that number every year when the income changes” (Interviewee, 6).

“Before I got stuck into any of this sort of work or advice, like anything, I’d want to make sure that I’ve done some sort of technical training on it, and I don’t know whether that’s in the design as well, that there is the opportunity to get some training up on all of this. I think it’d be good, certainly if accountants are getting involved with it, that there would be some training around concepts and reporting” (Interviewee, 7).

3.3.4 Supporting farmers to use accounts

Participants noted it was important for natural capital accounts to show what was happening on the farm and the direction the farm was headed to make accounts useful for farmers and farm accountants:

“For the work that we do, we are generally looking at a property at today’s point in time; however, it’s also great to understand the history of the property and what development or what improvements have been made over time. So, this tells a really good story of that. I’m just thinking whether this is the most effective way to describe it; once it’s explained to you, it makes sense, but without that training, it might take a little bit of understanding. But I was just going to go back to that opening page, the one that has the example NCA at the top, EcoFarmCo. I know everyone wants everything in numbers and letters, but that practical description of words and what the scenario is and what’s changed over time, that’s probably quite valuable to us and in terms of understanding what’s happened” (Interviewee, 3).

The above quote also highlights that training and support were considered important to help farmers develop and use the numbers in the accounts to tell the farm’s “story”. After only a short explanation by the interviewer, some participants were already able to use the tables to tell the “story” of the farm business performance. This incentivised participants to see how natural capital accounting could be used as an active part of decision-making to achieve change and targets:

Well, they’ve increased their – the farm has increased its value by introducing biodiversity and livestock value. Yeah, it’s good to get that further breakdown other than balance sheets and P&Ls and it’s around the environmental units that could be used to make further decisions about investment and liability. If they’re in a negative position, then what do they need to get out of it? (Interviewee, 1).

All participants saw that the natural capital accounts would be useful for demonstrating best practice to banks and consumers and would enable farmers to provide evidence for lower premiums or higher prices for their products. For this to occur, the accounts would need to be widely interpretable and useful in a range of contexts: with bankers, investors, clients, consumers, auditors, etc. Participants saw market-driven demand (and returns) as a necessary path to drive the uptake of natural capital accounting. Without the economic incentive from better profits or reduced costs, the adoption of natural capital accounting was seen to be slow and niche, as government or industry requirements were not expected to come before market signal incentives:

“I don’t think people will do it unless there’s a dollar in it or they’re forced to do it” (Interviewee, 4).

The interviewees noted a need for government or industry-led external advisors to support and help develop consistent methods of deriving figures and formatting accounts across commodity types, so that farmers were not expected to put together the accounts by themselves, which would make it harder to achieve consistency and credibility:

“I would find that very exciting, and even to a degree that you know, a lot of this accounting is actually produced by a statutory body. It’s actually giving it to you. You know, we’ve done it, here it is, if you want to dispute it, dispute it. I think you’re going to find a lot more take up, you know? Because really, I keep coming back to that how am I going to evaluate all this? And I think if it was done for you and to a degree, a lot of what you’re doing, [. . .] was actually presented to people. Like you get your accounts for rates notice, we’ve been through, the evaluation has been done, it is what it is. If it comes through like that, how good’s that?” (Interviewee, 4).

Our results also show a willingness to participate in co-development and further collaboration. The participants were keen to stay engaged, participate in further discussions, and advise on the next iterations and uses of the accounts, particularly in terms of valuations of biodiversity and carbon and developing industry skills and capacity. This work demonstrates that connecting bottom-up (user perceptions and opinions, needs and ideas) and top-down approaches (development of consistent and standardised accounts) can create opportunities for outcomes to be better aligned with stakeholders’ needs and make accounts more likely to be adopted.

4. Discussion

Our work looked at two research questions. First, what do farm accountants think about natural capital accounting on farms? We found that farm accountants found our prototype accounts to be understandable, easily learned and useful, and they saw potential in the approach. Our second research question asked, ‘How can natural capital accounts be made more relevant and useful for farm accountants?’ We found that farm accountants were excited about being part of co-developing natural accounting on farms and were particularly keen for work to develop reliable and consistent methods that resisted manipulation, offered value to farmers, and supported farmers in developing methods for their own situations.

These findings are significant for corporations who use agricultural products in their supply chains and who need information about the environmental performance of the farm business as part of sustainable sourcing decisions and to satisfy increasing demands for Scope 3 environmental performance reporting. They are also significant for governments including accounting standards setters such as the Australian Accounting Standards Board (AASB) and practice leaders such as the Chartered Accountants of Australia and New Zealand (CAANZ) who need to enable this to occur. The ease with which experienced farm accountants with existing knowledge and interest in natural capital interpreted the accounts suggests that natural capital accounts for farm businesses may follow the UN SEEA EA and financial accounting conventions with little or no modification for use at farm scale. However, the results also suggest that farm accountants will need training and other resources to prepare the accounts.

The literature identifies many challenges to developing consistent and reliable methods of natural capital accounts on farms, including the difficulty of metrics (Scorzelli et al., 2023; Hein et al., 2020; Turner et al., 2019; Ogilvy et al., 2022), and the complex ways that reports can be aggregated to inform national strategies and count towards global goals (Souliotis and Voulvoulis, 2021; Bateman and Mace, 2020; Ruijs et al., 2019).

Our research demonstrates that the UN SEEA EA approach to the preparation of natural capital accounts has the potential to be applied at a farm scale and provide a solution for corporate and government reporting to include farm business performance. Using accounts in this way reveals insights for farmers and advisors about the state and trends of natural capital and environmental performance. However, despite the potential usefulness of the information, the cost of preparing natural capital accounts for a farm business is a significant barrier (Ogilvy et al., 2022). The skills and technologies currently required to prepare the accounts demand specialised expertise, with significant manual calculation. This makes them time-consuming and expensive to prepare. We estimate AUD$70 000 over five years (Ogilvy, 2020). We anticipate that farm management, accounting software, and other agricultural technologies will soon enable the automation of much of the information required and thus reduce the cost of preparation. For example, AgriWebb and Ag360, providers of farm management software, have already begun to integrate some basic natural capital information (AgriWebb, 2023; Ag360, 2023). Agronomeye has revealed the capability to integrate geographical information and satellite imagery to produce a simulation of the natural capital of a farm to support decisions about natural capital management and investment priorities (Agronomeye, 2023). However, farmers will likely need support to prepare natural capital accounts in terms of access to training or expertise as well as subsidisation of up-front costs.

To support farmers to apply natural capital, it must be recognised that natural capital is only one type of capital driving farm management decisions (IIRC, 2021). Therefore, approaches must work with farmers’ current practices and objectives and not be an additional burden. Nevertheless, farm natural capital accounting represents a key pathway to achieving environmental sustainability within agriculture (Ogilvy, 2022; Ogilvy, 2020) and is necessary to enable corporations to comply with S2 legislation with respect to the disclosure of Scope 3 emissions and to address urgent environmental concerns (World Economic Forum, 2023).

Another way to support farmers in implementing natural capital accounting is through private incentives. Some companies may provide premiums for farms that can quantify their environmental performance. As suggested by one of the participants, investors in agricultural businesses may start to request information about the natural capital of farms and how it contributes to the goals of the farm business. However, government oversight will play an important role in preventing farmers’ data being misused through on-selling or surveillance (Fleming et al., 2022). Government can also support farmers in natural capital accounting through funding programs and training.

Information about the state and trends of on-farm natural capital plays an important role for governments in assuring food security and relationships with Australia’s trading partners (Plibersek, 2022; Watt, 2022). Governments, therefore, have an incentive to make sure information is produced and that it is useful to inform management, and not just box-ticking for compliance purposes. Governments also have an important role to play in ensuring that large companies or trading partners do not misuse their market power to push the cost and responsibility for reporting on maintaining or increasing natural capital (a public good) onto farmers. Mechanisms are needed to ensure that there is reasonable recognition of the cost of providing the information or the potential for increased standards of environmental performance to reduce private returns to farmers.

We expect that efforts by global standards setters (ISSB, 2023; TNFD, 2023; IASB, 2018) and their local counterparts to incorporate natural capital into accounting will be accelerated and greatly benefit from active co-development with farm accountants and farmers. Their familiarity with agricultural natural capital as part of farm business management is likely to be useful in the development of measurement concepts and methods. The comment from Interviewee 4 suggests that it could be regularly assessed by government ‘ […] like you get your accounts for your rates notice.’ Ideas from the user’s perspective about how the information might be prepared and used may accelerate the development of practical and cost-effective ways of generating information about farm-level natural capital.

Being included in processes when developing natural capital accounting may accelerate their adoption and capacity for sustainability reporting for corporations, especially those involved in agriculture, such as the food, fibre, beverage and financial services sectors. We encourage governments and providers of science and technology underpinning natural capital accounting to provide suitable environments to consider the needs of all these users in the information flow from farm to the board room – from global reporting standards to farm reporting standards – as they design technology, governance and other institutional guideposts to support the collective effort required to halt and reverse environmental degradation (Dasgupta, 2021; Bateman and Mace, 2020).

5. Conclusions, limitations and opportunities for future research

Natural capital accounting for farm businesses has the potential to enable farmers to transparently and holistically manage environmental sustainability and productivity and to satisfy the information needs of businesses in their supply chains including those required by emerging laws. However, the use of natural capital accounts on farms is less developed than in other parts of the economy. To contribute to producing practical and useable natural capital accounts for farms, we developed prototype natural capital accounts using the standards and approaches emerging from research and leading corporate practice. We interviewed seven farm accountants (and three with an interest in this area) to find out what they thought of natural capital accounting on farms and the changes required to the prototype accounts to improve their credibility and usability. We found that farm accountants supported the concept of including information about natural capital in the accounts of farm businesses; they found the prototype accounts quite easy to use and were keen to co-develop methods for improving the reliability of the valuations and reducing the cost of preparation. However, farm accountants believed that farmers would need support to prepare cost-effective and useful accounts for their farm businesses as well as to provide information to satisfy corporations’ needs.

To achieve widespread adoption of natural capital accounting on farms, it is essential that:

• Methods of valuation of ecosystem assets are standardised and provide consistent and reliable results.

• Measurements can be produced cost effectively and inform a variety of different farm business information needs.

The use of transdisciplinary (co-developed) and traditional science approaches to developing natural capital accounts is an important way to mainstream natural capital accounting. This paper identified clear, practical implications for natural capital accounting to focus on outcomes and usability through co-development to make sure that natural capital accounting is not a burden for farmers or a static administrative process that does not generate valuable information for them.

The finding that farm accountants who have knowledge of natural capital are welcoming of, and can easily interpret, natural capital accounts that have been prepared to be coherent with UN SEEA EA and with financial accounting convention, has important implications. It indicates that corporations and governments who are implementing natural capital accounting to address urgent environmental problems could utilise willing participation from this important stakeholder group to hasten progress on development an adoption of natural capital accounting.

We recognise that the sample size reported here (ten interviews, with seven from farm accountants) is small, and thus may be considered a limitation of the study. However, given that farm accounting is a niche specialisation, our seven farm accountant interviews were all with the same ‘persona,’ making the preliminary results applicable to that specific population of professionals. Natural capital accounting is a fast-moving area; thus, small sample sizes are appropriate for learning and responding quickly, and the general consensus obtained from interview participants regarding the utility of natural capital accounts suggests that additional interviews may not have provided any additional insights.

This study investigated how accountants who were already experienced in farm accounting and who were knowledgeable or interested in farm natural capital could use natural capital accounts prepared according to emerging conventions. However, the finding that they could use already-prepared accounts to interpret the performance of a business does not mean that they could successfully prepare the accounts themselves. Training and other resources will need to be provided to farm accountants to assist them to prepare natural capital accounts for their clients. Similarly, not all farm accountants should be expected to be able to use natural capital accounts without training and support, especially if the concepts of natural capital are completely new.

Our research is a preliminary exploration in an emerging area that has both theoretical and practical implications for accounting policy and implementation. It highlights the potential for research in sustainability accounting to incorporate co-development techniques to address usability and achieve greater application and value for society. Our finding that farm accountants are willing to participate and provide valuable insights confirms that there is an opportunity for further research to continue to co-develop natural capital accounting with users to more quickly produce methods that can be applied to address current real-world challenges.

Figures

Figure 1.

Ecosystem asset accounts provide an overview of the type and condition of the natural capital of Buriny (ecosystem assets in hectares) and explain changes between valuation periods

Figure 2.

Carbon performance statement prepared as a conceptual equivalent of a cash flow or profit and loss statement but describing the inflows and outflows of carbon.

Figure 3.

Carbon position statement prepared to show the net carbon performance of EcoFarmCo and Buriny at 2015 and 2020 in tonnes of CO_2-e

Figure 4.

The biodiversity position and performance statement prepared as an analogue of the equivalent concepts in financial accounting to communicate the net biodiversity of Buriny at 2015 and 2020 and the explanations for changes between the two periods

Figure 5.

The “extended” financial balance sheet that presents the ecosystem assets of Buriny as separate classes of asset

Table 1.

Summary of the links between codes, themes and interpretation

Interpretation	Themes	Codes
Methods need to be clear and reliable, consistent and easy to apply	Clarity	Asks for clarity on calculations
		Communicates unfamiliarity with measurement or index
		Communicates unfamiliarity with terminology
		Conveys the barrier of terminology
		Demonstrates unfamiliarity with NCA
		Expresses need for clarity on measurement methodology
		Expresses the need for simplicity
		States the need for a story in accounting
		States the requirement for explanations and context for data
Methods need to resist manipulation and be affordable, with farmers supported by experts	Measurement and assessment	Asks about who provides the assessments and data
		Brings to light the challenge of data distortion and fraud
		Conveys the financial challenge for farmers to assess farms frequently
		Demonstrates how you could value agricultural assets
		Expresses doubt about how to value certain agricultural assets
		Expresses the challenge of measuring natural capital
		Expresses the need for training
		Indicates the need for re-evaluations of natural capital
		Queries the future-proofing of natural capital accounting
Methods need to support different objectives and provide value to users	Motivation and reason	Demonstrates the need for financial incentives
		Exemplifies the need for NCA data to make it effective
		Expresses the desire for financial context to data
		Indicates the need for motivation or reason to use NCA
		Queries the importance and context of data
Results need to be useful in a range of contexts	Standardisation	Communicates the usefulness of standardising measurements and assessments
		Expresses desire for standardisation of measurement
		Queries consistency of price
		States the usefulness of standardising assumptions

Note:

NCA = natural capital accounting

Notes

1. www.latrobe.edu.au/research/centres/environment/future-landscapes/research/interventions/natural-capital-accounting

2. www.utas.edu.au/about/news-and-stories/articles/2020/agroforestry-focus-thanks-to-$3.9-million-funding

3. Australian Carbon Credit Units