Valuation methodologies have to be transparent, with a strong rationale, to be credible. Our approach combines robust economic modelling backed by clear arguments.

Natural capital comprises assets-in-perpetuity. This means that they should not be depreciated, but rather that capital maintenance should be provided to maintain the assets at least intact, and charged to the P&L. In the case of carbon, for example, the baseline assessment requires that the starting carbon capital is maintained, and the costs associated with doing this are calculated.

The valuation of the main flows is provided by the natural capital assets markets and/or policy prices where these are available, and proxies where they are not. In the case of carbon, for example, there are a number of market prices - including the EU ETS prices, the Carbon Floor Price and the possible Carbon Tax set out in the latest Treasury consultation, to be applied at the end of the BREXIT transition in January 2021.

Our approach, therefore, is to identify the current stocks [of carbon] and capitalise this on the balance sheet, deduct the capital maintenance from the P&L and then to identify costs of enhancements via trees, soils and other sequestration methods. There are no “right” discount rates to be applied and so a range is deployed in the capitalisation over future periods, partly dependent on a Company’s overall ethical approach to the future generations, its interpretation of its stewardship duty and its net zero objectives.