Materiality Assessment of Natural Capital Risks in Australian Forestry

Purpose of Review Natural capital is a term for the stocks of natural assets (e.g. natural resources and ecosystems) that yield flows of ecosystem services that benefit the economy and human well-being. Forestry is one of the industries with the greatest dependencies on natural capital, as well as having the potential for substantial positive or negative impacts on natural capital. These dependencies and impacts create direct risks to a forestry enterprise’s ongoing financial viability, which translate into indirect risks for investors and society. There are growing demands from a variety of stakeholders for more reliable information to assess such risks, but at present, these risks are not always well understood, assessed or communicated in a consistent and comparable way. This paper addresses this problem by applying a standardized methodology to develop the first systematic, evidence-based review and financial materiality assessment of natural capital risks for the Australian forestry sector. Recent Findings The vast potential scope of forestry impacts and dependencies on natural capital can be reduced to twenty key areas of relevance to Australian forestry, of which only seven to nine have been assessed as highly financially material for each of the sub-sectors of softwood plantations, hardwood plantations and native forestry. The majority of risks assessed as highly financially material are related to dependencies on natural capital. This is in part due to the fact that current regulations and certification schemes focus on managing impacts, but tend to overlook dependencies. Nearly all of the natural capital risks rated as highly material are likely to be exacerbated by climate change. Summary An improved understanding of natural capital risks is an important input to better decision-making by forestry enterprises, as well as their lenders and investors, forestry regulators and other relevant stakeholders. This paper contributes to the preparedness of the forestry industry and its stakeholders to address questions about vulnerability to future changes and declining trends in natural capital.