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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.

[ homepage image: Flickr user S.MiRK]