White House Announces Strategy on Incorporating Nature-Based Accounting in Benefit-Cost Analyses
Washington D.C. (September 6, 2022) - The White House Office of Management and Budget (OMB) is seeking input on the development of government-wide natural capital accounts and standardized environmental-economic statistics. The Administration intends for these new metrics to be used in benefit-cost analyses associated with agency actions and to measure risks in the environmental, social, and governance (ESG), and lending contexts. Comments are due by October 21, 2022.
This proposed strategy implements President Biden’s 2022 Earth Day Executive Order 14072, Strengthening the Nation’s Forests, Communities and Local Economics. Section 4, Deploying Nature-Based Solutions to Tackle Climate Change and Enhance Resilience, directs the OMB to issue guidance on the valuation of ecosystem and environmental services and natural assets in federal regulatory decision-making and directs the regulatory agencies to identify opportunities for greater deployment of nature-based solutions through policy, guidance, and regulatory program changes.
The strategy explains, “the challenges of climate change, biodiversity loss, air and water pollution, and environmental injustice carry implications for both the economy and the environment, and society cannot effectively or efficiently confront those challenges if economic and environmental accounting and policy proceed on two separate tracks.” Further, the Administration suggests that banks and financial regulators understand that biodiversity loss could pose risks relevant for financial stability. The Administration concludes that a system of nature-based accounting will help investors and banks understand the risks, leading to shifts in lending practices.
Regarding ESG reporting, the Administration sees the need for a federal accounting system of environmental-economic statistics for providing an official data source that firms can use to verify claims about their relationship to nature. In addition to impacts, there may be opportunities for conservation activities and stewardship of natural capital to become a credit-enhancing activity for landowners. The Administration encourages federal agencies to incorporate into their benefit-cost analyses how their actions change the value of services provided by natural assets and anticipates incorporation into OMB circulars on federal benefit-cost analyses by 2026.
It appears that this effort is already well underway, including potentially adopting approaches developed by the United Nations and being implemented by over 90 countries. As such, stakeholders are encouraged to engage with this OMB request for information, as much is at stake for U.S. businesses.
Lewis Brisbois’ attorneys are well versed in the nuances of ESG reporting and have written articles and appeared on panels looking at the issue of nature-based accounting. For more information on this topic, contact the author of this alert. Visit our Sustainability & ESG Practice page for additional alerts in this area.
Karen C. Bennett