2012-06-25

Co.Exist

Accountants Will Save The Planet

It may not sound glamorous, but better accounting practices might be just what it takes to get companies to start changing how their businesses affect the environment.

Last week, leaders from government, business and civil society gathered in Rio de Janeiro for a United Nations summit—called “Rio+20” because it is now 20 years since the original Earth Summit in Rio—intended to address the slow pace of change on sustainable development and determine the best path forward.

At business side events leading up to the event, executives repeated a refrain: We have the science. We have the technology. We know all we need to know. What are we waiting for?


Peter Bakker, President of the World Business Council for Sustainable Development (WBCSD), believes we’re wanting for better accounting mechanisms. Or, to put it in his words, that “accountants are going to save the world.” Not social entrepreneurs. Not virtuous companies. Not scientists. Yes, accountants.

How can those number-crunching brainiacs take on the superhuman task of stopping our transition to a dangerously hotter, polluted and resource-scarce planet?

Sustainable development leaders have long recommended the need to account for externalities. Externalities are the effects of services, products, or production on third parties who were not involved in the buyer/seller relationship, and can be negative, like pollution, or positive, like job creation. Sustainability leaders argue that by calculating the value of what nature provides to make the stuff we buy, and also by measuring the harm a product inflicts on the environment during production or consumption, we can gain a more realistic understanding of the costs of goods and services. That knowledge would likely lead to massive changes in the way we make, consume, and dispose of products. And that behavior change would put us on the path to sustainable development.


The problem? We haven’t yet come up with an accepted accounting framework to do so. How do we measure the value of the water it takes to make a T-shirt? The value of clean air versus polluted air? The waste that comes from cheaply made, throwaway products? And if we calculate the value, who pays?

Some companies have started to head in the right direction. Puma, the sporting goods company, took an initial step towards accounting for environmental externalities last year when it announced the start of an environmental profit and loss statement (EP&L) to track the company’s use of nature’s services in monetary terms. Although the EP&L is not officially a part of the company’s balance sheet, it can be overlaid on top of its traditional financial accounting in order to more fully understand its environmental impacts—valued at 145 million euros in 2010.

Last week in Rio, Puma’s CEO Jochen Zeitz did the rounds on the event circuit explaining how the EP&L had contributed to his own understanding about the company’s impact. Through the EP&L, he has been able to ascertain that only 6% of the company’s environmental impact comes from the firm’s own operations. The rest happens up and down their value chain, outside the four walls of the company. Learning about where these externalities occur is helping the company change business practices and become more sustainable.


Also at RioCentro, a host of companies from across sectors including Coke, Nike and Unilever, agreed to develop a methodology to assign value to the world’s forests, freshwater and marine systems. And 37 CEOs of financial institutions announced the Natural Capital Declaration to demonstrate commitment towards integrating natural capital considerations into financial products and services.

These developments show greater private sector interest in wanting to value earth’s assets and an understanding of the business imperative to protect them. But it is not enough.

Global polling results launched by GlobeScan and SustainAbility earlier this month indicate that sustainability experts overwhelmingly (4 out of 5) believe that our economic model will have to change substantially in order to achieve sustainable development. For too long, we have operated within a model that assumed that we have enough resources to use them now and worry later. By developing our planet under these norms, we have, according to Achim Steiner, Executive Director of the UNEP, made our “markets prisoner to the [economic] model of another age.”

Accountants can help us get to a new model. However, there is no plug-and-play solution for a company that wants to figure out how to jump on the externality accounting bandwagon. Accountants will be the key to creating and implementing systems that allow us to measure and value nature in every business.

[Fastcompany.com homepage image: Flickr user S.MiRK]

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2 Comments

  • MrMartinJSallberg

    Why do some brain damaged patients recover while others with the same brain damage do not? Metastudies by Kurt Fischer, Christina Hinton et al. shows that the key is tolerant environments. This agrees with Francisco Lacerda's theory that the reason why children learn language easily is because they do not fear being wrong, just like non-prejudiced scientists. The fact that the tolerant environment factor works even way past the end of all supposed "learning windows" also shows that there is no such thing as an immutable "shame instinct" either. There is evidence, especially from domestication research, showing that evolution can very rapidly select on individual variation and turn it into group differences. Thus there is a contradiction between nature explanations of individual psychiatry and nurture explanations of ethnic differences. There must be some missing methodological factor. Since racist discrimination is a form of intolerance often associated with other forms of intolerance, studies of ethnic differences effectively takes the tolerant environment factor into account, explaining why nurture explanations prevailed in studies of ethnic differences. But studies of individual psychiatry have, at least before Kurt Fischer's and Christina Hinton's metastudy, not taken the tolerant environment factor into account, explaining why nature explanations prevailed there. It is well-established that there was/is anomalies from the nature model of individual psychiatry, but people ignorant of the metastudy lumps everything into one statistic and dismiss the minority of cases as "anecdotical". Real science is about finding the pattern behind the anomalies to de-anecdotize them, just like Kurt Fischer and Christina Hinton did. And considering how stupid behavior is destroying the world (just look at pollution and deforestation!), this research about possibilities to change behavior to a rational form is invaluable. The fact that the plasticity only applies if the environment is tolerant means that there is no reason to fear that dictators will abuse the plasticity whatsoever.Martin J Sallberg

  • Allan Manabat

    "The mother of ALL battles"
    ... start small ... Denmark did this with its plastic bottles ... environmental benefit: no more plastic waste being disposed of in landfills ...